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Business  Competition 
and  the  Law 

Everyday  Trade  Conditions  Affected  by 
the  Anti-Trust  Laws 


•  !  »!  Z    "* 


By  ' 

Gilbert  Holland  Montague 


G*  P.  Putnam's  Sons 

New  York  and  London 

Cbe    fmfcfterbocfter    press 

1917 


Copyright,  191 7 

BY 

GILBERT  HOLLAND  MONTAGUE 


Vbe  ftniclterbocfier  Pceee,  f^ew  H^orlt 


PREFACE 

This  book  deals  wholly  with  practical  questions. 
Professionally  I  have  often  threshed  them  out, 
in  court  with  judges  and  against  opposing  counsel, 
in  conferences  with  United  States  Attorneys,  jaincj 
with  the  Federal  Trade  Commission,  and/ir^  cp;ri- 
sultations  with  bewildered  business  men  of  various 
stations  and  degrees.  No  one  realizes  better  than 
I  what  far-reaching  consequences  to  economics, 
to  sociology,  to  ethics,  and  to  government  these 
questions  are  bound  to  have.  But  this  is  not 
the  book,  nor  have  I  now  the  leisure,  to  explore 
into  these  theoretical  fields.  To  me  these  ques- 
tions present  themselves  daily  as  spelling  either 
success  or  failure  for  great  merchandising  organi- 
zations, for  nation-wide  sales  campaigns,  for 
carefully  conceived  and  elaborately  executed 
marketing  plans,  and  for  the  network  of  hundreds 
of  thousands  of  distributing  channels  that  create 
national  distribution  among  millions  of  consumers 
for   scores   of   competing   producers   and   manu- 

iii 

464776 


IV 


Preface 


facturers.  It  is  the  bearing  of  these  questions 
upon  the  web  and  woof  of  everyday  business — 
their  significance  to  make  or  break  the  manu- 
facturer or  his  competitor,  and  their  consequences 
to  large  investments  of  capital  and  effort  in  these 
great  organizations,  campaigns,  and  plans  for  dis- 
tribution— that  supply  the  keynote  of  this  book. 

This,  therefore,  is  a  book  for  business  men. 
Court  decisions  and  legal  proceedings  comprise, 
indeed,' 'its  backbone;  and  lawyers  and  economic 
stiidehtsi  will,  I  hope,  find  them  all  faithfully  cited. 
But  the  articles  that  were  the  nucleus  of  these 
chapters  were  originally  intended  for  business 
men;  and  in  preparing  these  pages  for  the  press, 
I  have  had  in  mind  the  same  audienc3.  Readers 
seeking  exact  references  will  find  £  itisfaction,  I 
trust,  in  the  Bibliography  and  Authorities  which 
I  have  appended. 

The  recent  dates  of  these  authorities,  I  might  add, 
are  not  at  all  accidental.  Business  competition 
is  a  relatively  new  legal  subject.  Only  recently 
has  it  been  realized  how  comprehensively  the 
Sherman  Act  has  covered  it.  Meanwhile,  before 
this  was  generally  realized,  the  Sherman  Act,  in 
19 1 4,  was  supplemented  by  two  other  acts:  the 
Clayton  Act,  which,  besides  prohibiting  various 


Preface  v 

kinds  of  price  discriminations  and  contractual 
arrangements,  also  increased  to  a  degree  still 
unappreciated  the  dangers  to  business  men  from 
the  an ti- trust  laws;  and  the  Federal  Trade  Com- 
mission Act,  which  vested  the  Commission  not 
only  with  sweeping  investigational  powers  and 
with  authority  to  enforce  the  specific  prohibitions 
just  mentioned,  but  also  charged  the  Commission 
with  the  duty  of  enforcing  a  general  prohibition 
against  all  ^'unfair  methods  of  competition*'  in 
interstate  and  in  foreign  commerce.  So  that, 
today,  there  converge  on  this  subject,  through 
Federal  authority  alone  irrespective  of  any  State 
anti-trust  statutes,  three  anti-trust  laws  of  sweep- 
ing application,  supported  by  the  entire  resources 
of  the  Federal  Trade  Commission,  the  great  powers 
of  the  Attorney-General,  the  Department  of  Jus- 
tice, and  the  United  States  Attorneys  in  every 
judicial  district  in  the  country,  and  the  vigorous 
and  litigious  inclinations  of  "aggrieved"  indi- 
viduals everywhere  to  whom  three-fold  damages 
with  a  counsel  fee  and  relief  from  any  debt  arising 
out  of  any  of  these  prohibited  transactions  may 
appear  to  be  an  object.  The  law  of  business 
competition,  therefore,  is  really  in  its  beginning. 
And  if  other  phases  of  the  Sherman  Act  afford 


VI  Preface 

any  criterion  of  judicial  development,  the  law  of 
business  competition  will  prove,  for  a  great  many 
years  to  come,  a  constant  school  for  humility  to 
anyone  who  attempts  now  to  dogmatize  about  it. 
Acknowledgment  is  due  to  Printers'  Ink  for 
permission  to  use,  as  the  nucleus  of  this  book,  a 
series  of  articles  of  mine  which  it  published  between 
September  and  December,  1915.  Acknowledg- 
ment also  is  due  to  Mr.  Roy  W.  Johnson,  who 
materially  assisted  me  in  the  preparation  of 
those  articles.  Too  frequently,  I  am  aware,  in 
the  following  pages,  do  unliterary  style,  colloquial- 
ism, business  idiom  and  vernacular — not  to  say 
slang — betray  the  fact  that  this  book  has  been 
written  in  moments  that  I  have  snatched  from 
professional  absorption  in  actual  pressing  prob- 
lems of  business  competition  and  the  law.  Ac- 
knowledgment in  advance,  therefore,  is  due  to 
all  readers  who  may  graciously  forgive  me  these 
faults. 


Gilbert  Holland  Montague. 


New  York  City. 
February,  1917. 


CONTENTS 

PACK 

Preface iii 

CHAPTER 

I. — Dangers    of    Aggressive    Salesman- 
ship      ...  ,1 

II. — Letters    that    Spell    Conspiracy        23 

III. — Getting  your  Competitor's  Business      52 


IV. — Price-Discriminations    and    Price- 
Manipulation 

V. — "Exclusive-Dealer "  Agreements 

VI. — The  Scope  of  Patent  Protection 

VII.— Some  "Tying-Contract"  Traps 

VIII. — The  Problem  of  "Price-Cutting" 

IX. — Why  Join  a  Trade  Association? 

X. — Bibliography  and  Authorities 

Index   


75 
101 
128 
156 
187 
229 
274 
311 


▼U 


Business  Competition  and 
The  Law 


CHAPTER  I 

DANGERS  OF  AGGRESSIVE  SALESMANSHIP 

'  An  insignificant  and  unobtrusive  little  manu- 
facturer began  to  market  a  specialty  through  the 
retail  trade  in  a  limited  territory.  He  had  a 
small  plant  where  he  put  up  the  goods,  and  he 
acted  largely  as  his  own  sales  force,  selling  direct  to 
the  smaller  stores.  From  each  dealer  he  secured 
a  straight  contract  binding  the  dealer,  among 
other  things,  to  resell  the  goods  at  a  specified 
price. 

By  degrees  a  local  demand  for  the  specialty 
began  to  manifest  itself,  and  one  of  the  big  stores 
made  inquiry.  The  manufacturer  produced  his 
contract,  which  the  store  declined  to  sign.     *'No 


2  Business  Competition 

contract,  no  goods,**  said  the  manufacturer, 
whereupon  the  store  filed  a  complaint  in  the  office 
of  the  United  States  Attorney. 

Let  me  emphasize  the  fact  that,  as  regards  the 
size  of  his  business,  this  little  fellow  was  utterly 
negligible.  His  annual  gross  business  probably 
wouldn't  have  paid  the  cigar  bill  of  any  one  of  half 
a  dozen  concerns  in  the  same  field.  To  apply 
to  him  the  epithets  reserved  for  violators  of  the 
Federal  anti-trust  laws  sounds  like  a  huge  joke. 
Yet  the  machinery  designed  for  curbing  predatory 
business,  popularly  known  as  "trust-busting,** 
pulverized  him  quietly  and  expeditiously. 

A  month  or  two  after  his  interview  with  the 
big-store  buyer,  the  specialty  man  received  a 
letter  from  the  United  States  Attorney's  office,  the 
first  paragraph  of  which  was  in  effect  a  subpoena. 
He  was  practically  directed  to  appear  forthwith, 
and  show  cause  why  he  should  not  be  proceeded 
against  as  a  conspirator  in  restraint  of  trade.  He 
couldn't  have  been  served  with  a  more  formidable 
document  if  he  had  been  as  big  as  the  United 
States  Steel  Corporation. 

His  lawyer  had  a  brief  interview  with  the  United 
States  Attorney.  The  Government  demanded  the 
cancellation  of  those  contracts;  nothing  else  would 


Aggressive  Salesmanship  3 

do;  it  wasn't  a  question  of  an  equity  suit  for  an  in- 
junction, but  a  Grand  Jury  proceeding  under  the 
criminal  sections  of  the.Sherman  Act ;  the  Govern- 
ment would  summon  every  dealer  wKo  had  signed 
the  contract,  as  well  as  the  big-store  buyer  who  had 
been  refused  the  goods;  there  would  be  no  chance 
for  the  manufacturer  to  claim  immunity  if  an 
indictment  were  found;  no,  it  didn't  make  the 
slightest  difference  that  this  manufacturer  hap- 
pened to  be  small  and  insignificant. 

The  Grand  Jury  proceeding  never  took  place. 
By  advice  of  counsel,  the  manufacturer  recalled 
his  contracts,  and  several  months  later  went  into 
bankruptcy. 

I  have  told  the  story  of  the  specialty  manu- 
facturer at  some  length,  because  it  illustrates  very 
clearly  a  fact  which  must  be  imderstood  at  the 
outset;  namely,  that  any  concern  which  is  doing 
business  across  a  State  line  may  at  some  time  run 
foul  of  the  anti- trust  laws.  No  manufacturer  or 
merchant  can  afford  to  be  careless  in  his  sales 
methods,  or  in  his  relations  with  customers  or 
competitors,  and  assure  himself  that  he  will 
escape  observation  because  he  is  inconspicuous. 
The  duty  of  investigating  alleged  violations  of 
one  or   another   of  the  Federal  anti-trust   laws 


4  Business  Competition 

now  rests  on  both  the  Department  of  Justice  and 
the  Federal  Trade  Commission,  and  the  latter 
body  is  even  more  accessible  to  complaints  than 
the  District  Attorney's  office.  Most  of  the  cases 
which  have  been  threshed  out  in  the  courts  have 
involved  large  concerns,  but  there  have  been 
hundreds  of  cases,  like  that  of  the  little  specialty 
man,  which  never  reached  the  courts  at  all. 
Rather  than  go  to  all  the  expense  of  fighting  a 
Government  prosecution,  many  a  concern  has 
been  obliged  to  change  its  selling  methods  in  some 
particular  to  meet  the  demands  of  the  Govern- 
ment. Probably  few  cases  have  resulted  so 
disastrously  as  that  cited  above;  but  it  is  not  an 
altogether  pleasant  experience  to  be  reviewed  by 
an  agent  of  Uncle  Sam  with  the  shadow  of  the 
Grand  Jury  looming  up  behind  him,  and  to  be 
compelled  to  go  to  all  the  expense  of  a  more  or  less 
complete  reorganization.  "Restraint  of  trade" 
is  a  pretty  broad  and  comprehensive  term,  and  it 
is  a  subject  in  which  no  business  man  can  afford 
to  plead  lack  of  interest. 

It  is  not  my  purpose  to  attack  the  law,  nor  to 
criticize  the  policy  of  the  Govemment,  nor  to 
teach  business  men  how  to  evade  the  law.  My 
intention  is  simply  to  point  out,  from  a  considerable 


Aggressive  Salesmanship  5 

study  of  the  multitudinous  court  decisions  in 
anti- trust  cases,  some  of  the  acts  which  the  Govern- 
ment regards  as  objectionable,  and  which  are 
likely  to  be  construed  as  evidence  of  an  attempt 
to  restrain  trade.  The  vast  majority  of  business 
men  desire  to  obey  the  law,  and  are  entitled  to 
know  the  specific  methods  of  getting  business 
which  are  likely  to  be  construed  as  a  violation  of 
the  law.  Business  men,  moreover,  are  entitled  to 
know  whether  the  competition  to  which  they  are 
being  subjected  by  their  rivals  is  legally  justifiable. 

IS  THE  GOVERNMENT  "LETTING  UP"? 

One  other  point,  before  I  go  on  to  the  discussion 
of  conspiracy  to  restrain  trade  as  interpreted  by 
the  courts.  It  has  repeatedly  been  declared, 
since  the  recent  decisions  in  the  Cash  Register, 
the  Shoe  Machinery,  and  the  Steel  Corporation 
cases,  that  the  Government  was  "letting  up"  in 
its  prosecutions  of  business  concerns,  that  public 
opinion  was  running  strongly  against  the  vigorous 
enforcement  of  the  Sherman  and  Clayton  Acts, 
and  that  the  courts  were  showing  much  greater 
leniency  towards  alleged  offenders.  After  a 
careful  study  of  the  opinions  rendered  in  these 


6  Business  Competition 

recent  cases  and  of  the  Government's  contentions 
in  indictments,  petitions,  and  briefs  in  cases  now 
pending,  I  see  absolutely  no  warrant  for  such  a 
conclusion — except  in  one  particular.  At  present, 
the  theory  that  mere  size  may  make  a  concern  an 
unlawful  ''trust, "  and  the  notion  that  because  it 
controls  a  large  percentage  of  the  business  in  its 
field  it  is,  prima  faciei  a  trade  restraint,  seems  to 
be  losing  credit  in  the  courts.  Whether  the  Gov- 
ernment will  succeed  in  its  effort  to  revivify  this 
notion  and  establish  this  theory  in  the  Harvester 
case  is  a  question  now  awaiting  the  determination 
of  the  Supreme  Court.  The  courts  refused  to 
dissolve  the  United  Shoe  Machinery  Company 
and  the  United  States  Steel  Corporation,  even 
though  they  were  tremendously  large  and  were 
pre-eminent  in  their  respective  fields.  But  the 
inquisition,  both  of  the  courts  and  of  the  Gov- 
ernment, into  the  methods  by  which  trade  pre- 
eminence has  been  gained  are  as  thoroughly 
relentless  as  ever.  There  is  absolutely  no  indi- 
cation to  be  found  in  any  recorded  case  that  the 
Government  or  the  courts  are  disposed  to  relax 
their  vigilance  one  iota  as  regards  the  m^ans  by 
which  trade  is  acquired. 

It  may  well  be,  as  the  newspapers  tell  us,  that 


Aggressive  Salesmanship  7 

the  Government  will  refrain  from  inaugurating 
many  new  prosecutions  until  after  the  Harvester, 
the  Shoe  Machinery,  the  Steel  Corporation,  and 
some  of  the  other  anti-trust  cases  now  pending 
in  the  Supreme  Court  are  decided.  Possibly 
some  of  the  cases  now  in  progress  will  be  allowed 
to  drag.  But  as  long  as  the  law  is  on  the  statute- 
books — and  there  is  no  present  indication  that  it 
will  not  remain  there — no  business  man  should 
persuade  himself  that  he  need  not  respect  it.  His 
acts  of  today  and  tomorrow  may  be  used  twenty 
years  hence  as  evidence  of  conspiracy,  if  some 
future  Attorney-General  shall  choose  to  examine 
into  them.  The  records  in  the  Cash  Register  case 
show  how  the  competitive  acts  of  times  long  past 
may  enmesh  with  dangerous  consequences  in 
the  proof  of  a  constructive  conspiracy.  The 
Government  can  probe  the  history  of  a  busi- 
ness as  far  back  as  it  likes  in  the  search  for  a 
plan  of  action  in  the  form  of  a  conspiracy,  and 
in  order  to  convict  it  is  only  necessary  to  show 
that  the  conspiracy  continued  down  to  a  date 
within  three  years  prior  to  the  indictment.  Any 
security  which  is  founded  upon  temporary  non- 
enforcement  of  the  law  is  the  falsest  kind  of 
security. 


8  Business  Competition 

WHAT  CONSTITUTES  A   CONSPIRACY 

The  Sherman  Act,  of  July  2,  1890,  declares  that 
combinations  and  conspiracies  in  restraint  of 
trade  and  attempts  to  monopolize  are  unlawful. 
The  Clayton  Act,  of  October  15,  19 14,  singles 
out  certain  specific  kinds  of  acts,  such  as  price- 
discriminations  and  "  tying-con tracts,"  and  de- 
clares them  unlawful  when  their  effect  is  substantially 
to  lessen  competition  or  tend  to  create  a  monopoly. 
Whether  the  Clayton  Act  really  adds  anything  to 
the  earlier  statute  is  debatable.  But  this  much 
is  certain,  that  in  any  case  the  object  of  the  law 
is  to  prevent  restraint  of  trade  by  means  of  agree- 
ments or  of  aggressive  acts  of  monopohzing  ten- 
dency. The  offence  is  the  resulting  or  threatened 
restraint  of  trade,  and  not  primarily  the  separate 
acts  which  may  be  alleged  as  proof  that  restraint 
of  trade  exists  or  is  threatened. 

It  is  important  that  the  foregoing  distinction 
be  kept  clearl^T-  in  mind.  It  is  perfectly  proper, 
for  example,  to  require  one's  salesmen  to  make 
reports  concerning  the  sales  of  competing  products 
in  their  territories.  There  is  no  law  against  such 
a  procedure;  in  fact,  it  is  common  practice  among 
business  men  generally.     But  that  harmless  and 


Aggressive  Salesmanship  9 

almost  necessary  practice  may  react  with  deadly 
effect  if,  at  the  same  time,  the  company  is  indulging 
in  other  practices  which,  when  taken  together, 
indicate  a  plan  to  restrict  competition. 

A  case  in  point  is  the  Turpentine  case 
which  came  before  the  Supreme  Court  of  the 
United  States  in  19 13.  This  was  a  criminal 
suit  under  the  Sherman  Act,  brought  by  the 
Government  against  certain  officials  of  a  tur- 
pentine company  as  individuals.  The  Govern- 
ment alleged  threats  of  competitive  acts  as  proof 
that  a  conspiracy  to  restrain  trade  and  crush 
competition  had  been  entered  into.  Some  of  the 
acts  would  have  been  plain  violations  of  local  laws. 
Among  them  were  fraudulently  grading,  regrading, 
and  raising  grades  of  rosins  and  falsely  gauging 
spirits  of  turpentine.  Most  of  the  acts  threatened, 
however,  considered  in  themselves  and  separately 
from  each  other  and  from  the  surrounding  cir- 
cumstances, would  not  have  apparently  violated 
any  local  laws;  and  these  threats  comprised  the 
charges  on  which  the  Government  chiefly  relied 
in  obtaining  the  conviction  of  these  officials. 

Included  among  these  threatened  acts  were  the 
following  tactics  of  aggressive  competition:  Bid- 
ding down  turpentine  and  rosin  so  that  competitors 


lo  Business  Competition 

cx>uld  sell  them  only  at  ruinous  prices;  causing 
naval-stores  receipts  that  naturally  would  go  to 
one  port  to  go  to  another;  purchasing  thereafter 
a  large  part  of  the  company *s  supplies  at  ports 
known  as  closed  ports,  with  intent  to  depress  the 
market;  refraining  from  purchasing  any  appreci- 
able supply  at  Savannah,  the  primary  market  in 
the  United  States  for  naval  stores,  where  pur- 
chases would  tend  to  strengthen  prices,  but 
instead  taking  the  receipts  at  the  closed  ports 
named  on  a  basis  of  the  market  at  Savannah; 
coercing  factors  and  brokers  into  contracts  with 
the  defendants  for  the  storage  and  purchase 
of  their  receipts  and  refusing  to  purchase 
from  factors  and  brokers  unless  such  contracts 
were  entered  into;  inducing  consumers,  by  pay- 
ments and  threats  of  boycotts,  to  postpone  dates 
of  delivery  of  contract  supplies,  and  thus  enabling 
defendants  to  postpone  purchasing,  when  to  pur- 
chase would  tend  to  strengthen  the  market; 
making  tentative  offers  of  large  amounts  of  naval 
stores  to  depress  the  market ;  accepting  contracts 
only  for  small  amounts  and  purchasing  when 
the  market  had  been  depressed  by  the  offers; 
selling  far  below  cost  in  order  to  compel  competi- 
tors to  meet  prices  ruinous  to  everybody;  and 


Aggressive  Salesmanship  ii 

fixing  the  price  of  turpentine  below  the  cost  of 
production. 

Probably  none  of  these  acts,  in  themselves  and 
separately  considered,  would  have  violated  any 
anti- trust  law ;  and  after  the  defendants  had  been 
convicted  and  sentenced,  their  counsel  urged  this 
point  upon  appeal  in  the  Supreme  Court  of  the 
United  States.     To  this  the  coiurt  said: 

"As  to  the  suggestion  that  the  matters  alleged 
to  have  been  contemplated  would  not  have  con- 
stituted an  offence  if  they  had  been  done,  it  is 
enough  to  say  that  some  of  them  conceivably 
might  have  been  adequate  to  accomplish  the  result, 
and  that  the  intent  alleged  would  convert  what  on 
their  face  might  be  no  more  than  ordinary  acts  of 
competition  or  the  small  dishonesties  of  trade  into 
a  conspiracy  of  wider  scope.  ...  Of  course,  this 
fact  calls  for  conscience  and  circumspection  in 
prosecuting  officers,  lest  by  the  unfounded  charge 
of  a  wider  purpose  than  the  acts  necessarily  im- 
port they  convert  what  at  most  would  be  small 
local  offences  into  crimes  under  the  statutes  of  the 
United  States.  But  we  cannot  say  .  .  .  that  no 
intent  could  convert  the  proposed  conduct  into 
such  a  crime"  (italics  added). 

That  acts  which  *'on  their  face  might  be  no  more 


12  Business  Competition 

than  ordinary  acts  of  competition,"  perhaps  not 
even  "small  dishonesties  of  trade,"  may  take  on- 
the  character  of  a  conspiracy  in  violation  of  the 
anti-trust  laws,  is  now  well  settled.  The  Supreme 
Court  emphatically  stated  this  principle  in  1905, 
in  the  Packers'  case;  again  in  1908,  in  the  Danbury 
Hatters'  case;  and  again  in  19 12,  in  the  Reading 
case. 

Since  acts  which  in  themselves  are  innocent 
may,  in  the  eye  of  the  law,  become  links  in  the 
chain  of  a  conspiracy  in  restraint  of  trade,  it 
might  appear  that  in  case  of  doubt  safety  must  lie 
in  the  direction  of  refusal  to  act.  But  refusal 
to  act,  and  even  mere  inaction,  is  sometimes  quite 
as  dangerous  as  any  affirmative  act  can  be. 

CONSPIRACY  BY  CONCERTED  INACTION 

Refusal  to  deal  with  some  particular  concern  is, 
in  itself,  quite  innocent.  In  the  absence  of  con- 
tract, there  is  never  any  duty  to  enter  into  or  to 
continue  business  relations  with  anybody.  Yet 
the  Danbury  Hatters'  case,  and  a  long  line  of 
''boycotting"  cases  that  preceded  it,  clearly  de- 
monstrated that  when  members  of  labour  organ- 
izations, in  pursuance  of  a  common  plan,  refuse  to 


Aggressive  Salesmanship  13 

buy,  or  to  work,  or  to  enter  into,  or  to  continue 
any  kind  of  business  relation  with  some  particu- 
lar concern  and  such  refusal  affects  interstate 
commerce,  they  violate  the  Sherman  Act.  And 
so  the  law  remained  until  1914,  when  it  was 
changed  by  the  Clayton  Act  which  created  a 
special  exception  for  labour,  and  expressly  re- 
lieved it  from  this  rule. 

But  the  general  rule  still  applies,  however,  in 
every  day  competition  of  business  men. 

Take  the  case  of  the  retailer  who  is  harassed 
by  the  competition  of  mail  order  houses  and  the 
competition  of  concerns  that  sell  to  consumers 
through  channels  other  than  the  regular  retail 
channels.  No  form  of  competition  is  more 
vexatious  to  the  retailer.  Can  he  not  refuse  to 
buy  from  the  manufacturer  who  thus  supplies 
his  most  disliked  competitor?  Of  course  he  can! 
But  see  what  happens  when  he  refuses  to  buy  in 
pursuance  of  a  common  agreement  entered  into 
by  a  number  of  retailers  not  to  buy  from  such  a 
manufacturer.  I  quote  from  the  decision  of  the 
Supreme  Court  of  the  United  States  in  19 10, 
in  which  the  court  held  that  a  retail  lumber  asso- 
ciation which  did  just  this  thing  had  violated  the 
anti- trust  laws  of  the  State  of  Mississippi : 


14  Business  Competition 

"That  any  one  of  the  persons  engaged  in  the 
retail  lumber  business,"  said  the  Supreme  Court, 
''might  have  made  a  fixed  rule  of  conduct  not  to 
buy  his  stock  from  a  producer  or  wholesaler  who 
should  sell  to  consumers  in  competition  with 
himself,  is  plain.  No  law  which  would  infringe 
his  freedom  of  contract  in  that  particular  would 
stand.  But  when  the  plaintiffs  in  error  combine 
and  agree  that  no  one  of  them  will  trade  with  any 
producer  or  wholesaler  who  shall  sell  to  a  con- 
sumer within  the  trade  range  of  any  of  them,  quite 
another  case  is  presented.  An  act  harmless  when 
done  by  one  may  become  a  public  wrong  when 
done  by  many  acting  in  concert,  for  it  then  takes 
on  the  form  of  a  conspiracy,  and  may  be  pro- 
hibited or  punished,  if  the  result  be  hurtful  to  the 
public  or  to  the  individual  against  whom  the 
concerted  action  is  directed.  ... 

"But  the  plaintiffs  in  error  say  that  the  action 
which  they  have  taken  is  purely  defensive,  and 
that  they  cannot  maintain  themselves  as  in- 
dependent dealers  supplying  the  consumer  if  the 
producers  or  wholesalers  from  whom  they  buy 
may  not  be  prevented  from  competing  with  them 
for  the  direct  trade  of  the  consumer. 

''For   the   purpose   of   suppressing   this   C5om- 


Aggressive  Salesmanship  15 

( 
petition  they  have  not  stopped  with  an  individual 

obligation  to  refrain  from  dealing  with  one  who 
sells  within  his  own  circle,  and  thereby  deprives 
him  of  a  possible  customer,  but  have  agreed  not 
to  deal  with  any  one  who  makes  sales  to  con- 
sumers, which  sales  might  have  been  made  by  any 
one  of  the  seventy-seven  independent  members  of 
the  association.  Thus  they  have  stripped  them- 
selves of  all  freedom  of  contract  in  order  to  compel 
those  against  whom  they  have  combined  to  elect 
between  their  combined  trade  and  that  of  con- 
sumers. That  such  an  agreement  is  one  in  re- 
straint of  trade  is  undeniable,  whatever  the  motive 
or  necessity  which  has  induced  the  compact." 

Four  years  later,  the  Supreme  Court  of  the 
United  States  with  equal  emphasis  laid  down  the 
same  principle  in  a  decision  holding  that  another 
retail  lumber  dealers*  association,  whose  members 
had  concertedly  refused  to  buy  in  pursuance  of  an 
arrangement  substantially  like  that  of  the  associa- 
tion above  described,  had  violated  the  Sherman  Act. 

REFUSAL  TO  SELL  AS  AN  ACT  OF  CONSPIRACY 

The  lesson  of  these  decisions  might  appear  to 
be  that  the  danger  of  refusing  to  enter  into  or  to 


i6  Business  Competition 

continue  business  relations  consists  wholly  in 
concerted  agreement  in  such  refusal;  and  that  if 
only  each  man  made  such  refusal,  without  first 
having  agreed  with  his  fellows  that  they  would 
all  refuse  together,  he  would  be  absolutely  safe. 
But  even  in  that  direction  danger  is  threatened  by 
the  long  arm  of  coincidence.  A  refusal  to  sell, 
even,  may,  in  certain  coincidences,  and  under  sur- 
rounding circumstances  of  a  certain  character, 
become  evidence  of  a  conspiracy  in  restraint  of 
trade. 

Take  the  case  of  the  manufacturer  who  receives 
an  order  from  a  dealer  whom  he  has  every  reason 
to  believe  will  slaughter  the  price  of  his  goods, 
and  cut  so  deeply  under  the  price  at  which  other 
•dealers  are  selling  them  that  dealers  everywhere 
will  lose  all  incentive  to  push  or  even  carry  the 
goods.  Can  this  manufacturer  refuse  to  sell 
to  the  price  cutter?  Right  to  refuse  to  deal  with 
one  whom  you  do  not  want  to  do  business  with 
would  seem  to  be  part  of  your  right  to  life,  liberty, 
and  the  pursuit  of  happiness  which  has  been 
popularly  considered  inalienable  ever  since  the 
Declaration  of  Independence.  Leaving  out  of 
account  railroads  and  telephone  companies  and 
lighting  companies  and  the  entire  class  of  public 


Aggressive  Salesmanship  17 

utility  businesses  that  enjoy  special  privileges 
from  the  community  and  are  therefore  held  to 
special  obligations  to  serve  everybody,  it  would 
seem  that  the  right  to  refuse  to  sell,  for  any  reason 
or  for  no  reason,  must  be  the  clearest,  most  obvi- 
ous, and  most  universal  right  that  the  Constitution 
assiu*es  to  a  citizen.  This  right  to  refuse  to  sell  to 
a  "price-cutter*'  has,  indeed,  been  sweepingly  up- 
held recently  by  the  District  Court  and  the  Circuit 
Court  of  Appeals  in  one  of  the  federal  circuits  in 
the  Cream  of  Wheat  case.  Yet,  in  full  view  of 
these  decisions,  we  find  in  another  federal  circuit, 
in  a  suit  by  a  "  price-cutter  *'  for  threefold  damages 
under  the  anti-trust  laws  against  a  grape  juice 
manufacturer  who  refused  to  sell  him  grape  juice, 
another  federal  judge  laying  down  the  law  to  the 
jury  in  these  terms : 

"Defendant  has  asked  me  to  say  to  you  that  it 
has  an  unquestioned  right  to  stop  dealing  with  a 
jobber  for  reasons  sufficient  to  itself,  and  it  and 
any  other  manufacturer  has  an  unquestioned 
right  to  deal  with  or  stop  dealing  with  any  jobber 
of  his  product,  and  that  where  it  distributed  its 
product  through  jobbers,  upon  whose  methods  of 
business  it  is  largely  dependent  for  the  sale"^.or 
the  distribution  of  his  product,  it  has  a  right  to 


1 8  Business  Competition 

choose  the  jobbers  through  whom  it  will  sell  and 
distribute  its  product.  Now  all  those  statements 
are  true.  Defendant  further  asks  me,  however, 
to  say  that  the  reasons  which  influence  the  manu- 
facturer in  such  cases  to  choose  between  jobbers 
or  to  stop  dealing  with  a  particular  jobber  are  of 
no  consequence.  Ordinarily  that  is  true.  It  is 
always  true  except  under  circumstances  which  I 
shall  hereafter  specify.  .  .  . 

**  There  is  evidence  that  certain  jobbers,  actual 
and  potential  competitors  of  the  plaintiff  herein 
Baltimore  in  the  sale  of  Welch's  grape  juice,  com- 
plained to  the  defendant  that  plaintiff  was  cutting 
prices.  Defendant  then  satisfied  itself  that  plain- 
tiff was  in  fact  doing  so.  Subsequently  it  refused 
to  fill  an  order  it  had  from  the  plaintiff  and  has 
never  since  sold  it  any  grape  juice.  It  is  further  in' 
evidence  that  the  defendant  then  notified  the 
jobbers  who  had  complained  of  plaintiff's  price 
cutting  that  defendant  had  cut  it  off  of  the  list 
of  defendant's  distributors  and  would  not  there- 
after sell  it  grape  juice.  There  is  further  in  evi- 
dence a  circular  letter  of  the  defendant  sent  out 
to  the  trade  in  October,  1912,  in  which  defendant 
stated  they  expected  jobbers  to  maintain  its 
resale  prices,  and  that  it  would  decline  to  sell  to 


Aggressive  Salesmanship  19 

those  who  did  not.  It  is  for  you  to  say  upon  this 
whole  evidence  whether  you  are  satisfied  by  a 
fair  preponderance  of  the  evidence  that  in  point  of 
fact  there  was  an  understanding  or  combination 
among  the  defendant  and  the  jobbers  to  whom  it 
sold,  or  some  of  them,  that  Welch's  grape  juice 
was  not  to  be  resold  by  a  jobber  at  a  price  below  that 
fixed  by  the  defendant  for  such  resale  and  that  a7iy 
jobber  who  did  so  resell  had  broken  the  agreement 
and  that  the  defendant  would  enforce  the  agreement 
and  protect  the  others  against  any  liability  to  appre- 
ciable damage  from  its  breach  by  refusing  to  sell  to 
any  one  who  broke  the  agreement.  ... 

*'If  you  shall  find  that  there  was  a  combination 
of  the  character  described  to  which  defendant  was 
a  party,  and  that  its  refusing  to  sell  plaintiff  any 
more  grape  juice  was  made  in  furtherance  of  the 
purpose  of  such  combination,  then  your  next  in- 
quiry would  be  as  to  what  damage,  if  any,  the  plain- 
tiff has  shown  that  he  has  suffered  from  such  acts 
of  defendant"  (italics  added). 

This  illustrates  very  prettily  the  reasoning  by 
which  an  act,  or  even  inaction,  that  in  itself 
may  be  absolutely  innocent,  can  be  caught  in  a 
chain  of  circumstances,  and  arrayed  before  the 
jury  in  connection  with  other  facts,  and  made  by 


20  Business  Competition 

the  plaintiff  to  appear  to  be  the  very  cornerstone 
of  a  conspiracy  in  violation  of  the  anti-trust  laws. 
Nor  does  the  fact  that  in  the  case  above  quoted  from 
the  jury  after  two  trials  returned  a  verdict  for  the 
defendant  destroy  the  force  of  the  illustration, 

INTENT  IS  ALWAYS  THE  MAIN  ISSUE 

A  conspiracy  in  restraint  of  trade,  then,  is  a 
plan  or  purpose  to  accomplish  certain  things.  The 
conspiracy  itself,  of  course,  is  invisible  and  in- 
tangible, since  it  is  wholly  a  state  of  mind;  but 
its  means  and  its  effects,  in  the  form  of  aggressive 
sales  poHcies,  can  be  readily  detected.  It  is  the 
duty  of  the  courts  to  decide  whether  the  tactics  of 
aggressive  salesmanship  are  really  the  means  and 
effects  of  a  conspiracy  or  of  something  else.  This 
point  can  best  be  illustrated  by  quoting  the  words 
of  a  Federal  District  Judge  in  his  charge  to  the 
jury,  in  1914,  in  a  damage  suit  brought  imder  the 
Cherman  Act  against  a  powder  company: 

"You,  in  your  consideration  of  the  facts," 
said  the  Judge,  "of  course,  will  endeavour  to 
ascertain  whether  they  stand  isolated  or  are 
steps  in  a  general  plan.  If  they  are  the  former, 
that  is,  separate  and  disconnected,   I  think  you 


Aggressive  Salesmanship  21 

would  have  great  difficulty  in  finding  that  they 
show  such  an  attempt  at  monopolization  as  is 
necessary  to  maintain  this  suit.  If,  however,  you 
find  that  they  bear  a  relation  to  each  other,  and 
the  facts  satisfy  you,  in  the  manner  that  I  have 
charged  you,  that  they  are  part  and  parcel  of  a 
general  plan,  or  steps  in  a  deliberate  purpose,  the 
question  then  is:  What  is  that  plan  or  purpose? 
Such  plan  might  be  either  legitimate  or  illegitimate. 
Was  such  a  plan  or  purpose  to  merely  protect  the 
legitimate  interests  of  the  defendant  in  the  trade, 
that  is,  was  it  for  the  purpose  of  protecting  such 
part  or  all  of  the  trade  which  it  had  acquired  there- 
tofore by  legitimate  means,  or  which,  by  reason 
of  its  capacity  and  ability  to  supply,  it  was  rea- 
sonably entitled  to  in  free  and  open  competition; 
or  was  it  to  harass  and  oppress  its  competitors  so 
that  in  the  end,  be  it  near  or  far  removed,  they 
would  cease  to  be  independent  competitors  and 
leave  it  master  of  the  market?  If  you  find  that 
such  protection,  and  not  oppression,  was  the 
purpose  and  the  use  made  of  such  steps  or  parts  of 
a  plan,  then  the  defendant  is  not  liable  in  damages 
sim.ply  because  as  an  incident  to  the  carrying  out 
of  that  plan,  a  competitor  was  injured  in  his  busi- 
ness or  property." 


22  Business  Competition 

This  states  the  law  about  as  definitely  and  com- 
prehensively as  it  has  ever  been  stated.  It  also 
indicates  the  tremendous  importance  which  iso- 
lated acts  of  salesmanship  may  assume,  when  they 
are  grouped  together  for  consideration  by  a  jury. 
Indeed,  aggressive  sales  methods  are  the  com- 
monest form  of  evidence  in  anti-trust  cases,  and 
every  manufacturer  should  scrutinize  his  sales 
policies  with  the  greatest  care.  Fortunately  the 
courts  have  pointed  out  certain  kinds  of  competi- 
tive acts  which  are  regarded  as  objectionable, 
and  which  will  pretty  certainly  be  construed  as 
evidence  of  an  intent  to  restrain  trade  unlawfully. 


CHAPTER  II 

LETTERS  THAT  SPELL  CONSPIRACY 

Every  business  man  writes  letters.  As  a  part  of 
the  regular  daily  routine,  letters  go  out  to  cus- 
tomers and  possible  customers,  to  jobbers  and 
dealers,  and  to  the  sales  force:  letters  which 
quote  prices,  answer  inquiries,  seek  information, 
settle  disputes,  declare  policies.  Instruction  and 
encouragement  are  imparted  to  the  selling  or- 
ganization by  letter,  and  some  form  of  "ginger- 
up"  matter  has  come  to  be  a  regular  institution 
in  most  concerns  which  do  business  over  any 
considerable  territory.  The  entire  history  of 
almost  any  business  can  be  traced,  step  by  step, 
and  in  the  completest  detail,  by  examination 
of  its  correspondence  files  and  scrap-books. 

More  than  that,  the  underlying  motives  of  almost 
any  business  can  be  reconstructed  by  skilful 
piecing  together  of  various  specimens  of  its  written 
and  printed  communications.     The  materials  for 

*3 


24  Business  Competition 

such  a  reconstruction  are  nearly  always  in  exist- 
ence, and  the  officials  of  the  Department  of  Justice 
are  adepts  at  the  work.  When  a  concern  is  com- 
plained against  as  being  in  violation  of  the  anti- 
trust laws,  the  first  step  is  usually  a  conference  in 
the  office  of  the  United  States  District  Attorney, 
and  the  second  is  the  official  examination  of  the 
correspondence  as  far  back  as  the  Government 
cares  to  go.  The  District  Attorney  is  refreshingly 
frank  about  it.  He  "requests"  the  privilege  of 
ransacking  your  letter  files  and  your  scrap-books 
in  order  to  determine  whether  or  not  you  really 
intended  an  unlawful  restraint  of  trade.  He 
admits  that  3^ou  are  perfectly  at  liberty  to  refuse, 
whereupon  he  will  be  obliged  to  go  into  court  and 
commence  proceedings  which  will  authorize  him 
to  do  it.  Furthermore,  your  refusal  will  be 
construed  as  an  admission  that  you  have  some- 
thing to  conceal,  so  that  on  the  whole  it  is  better 
to  yield  gracefully  in  the  first  place. 

The  emissary  of  the  Government  comes  to  your 
office,  and  spends  as  much  time  as  he  sees  fit  in 
going  over  the  records  of  past  correspondence.  He 
takes  copious  notes,  paying  particular  attention 
to  form  letters  which  have  been  mailed  to  the 
trade  and  to  the  bulletins  containing  instructions 


Conspiracy  25 

for  the  sales  force.  Then  he  goes  away,  and  per- 
haps  the  Attorney-General  then  prepares  his  bill  of 
complaint.  Later  on,  if  the  case  comes  to  trial,  a 
subpcsna  duces  tecum  can  be  relied  upon  to  pro- 
duce the  original  documents  in  court.  The  court 
may  not  agree  with  the  Government  as  regards 
the  motive  behind  the  letters,  but  the  significant 
fact  remains  that  those  very  letters,  which  may 
have  reposed  in  the  files  for  years  on  end,  are  quite 
likely  to  prove  one  of  the  most  important  factors  in 
the  whole  case. 

Indeed,  the  results  in  so  many  important  cases 
have  hinged  upon  the  interpretation  which  should 
be  placed  upon  a  group  of  letters — and  sometimes 
upon  a  single  letter — that  it  has  been  thought  wise 
to  emphasize  this  phase  of  the  subject  thus  early 
in  this  discussion.  As  has  been  stated,  every 
business  man  writes  letters,  and  there  are  few 
business  houses  that  do  not  at  some  time  or 
other  issue  statements  of  policy  to  the  trade  or  to 
their  own  organizations.  In  view  of  the  activity 
of  the  Government,  and  the  emphasis  which  has 
been  placed  upon  communications  of  this  nature 
in  anti-trust  suits,  it  is  of  the  highest  importance 
to  avoid  carelessness  of  phraseology  in  letters 
which  are  meant  to  define  sales  policies. 


26  Business  Competition 

Let  us  examine  the  actual  text  of  a  few  letters 
which  have  been  reviewed  by  the  courts,  together 
with  the  judicial  comment  which  they  called 
forth.  Even  if  they  do  not  indicate  any  general 
rule  by  which  such  letters  may  be  made  absolutely 
safe — such  a  rule  is  impossible  to  frame  under 
present  conditions — they  will  at  least  show  the 
process  by  which  the  court  attempts  to  get  at  the 
ruling  motive,  which  is  the  real  point  at  issue. 

A  CIRCULAR  LETTER  DISSECTED 

Under  date  of  January  15,  19 10,  a  watch-case 
company  sent  the  following  letter  to  one  hundred 
and  thirty-one  jobbers  in  the  United  States : 

**Dear  Sir:  We  inclose  herewith  our  new 
price  list  which  we  are  mailing  to  the  retail  trade 
today.  These  prices  are  subject  to  the  usual 
catalogue  discount  and  the  case  discount  only. 

"We  also  inclose  memoranda  of  the  prices  at 
which  Boss,  Crescent,  Planet,  Crown,  and  Silveroid 
cases  and  Excelsior  watches  will  be  billed  in  future 
to  our  jobbers.  These  prices  are  net,  subject  to  the 
cash  discount  only. 

**  These  prices  are  confidential. 

"For  the  best  interests  of  our  business  we  have 


Conspiracy  27 

determined  to  sell  our  goods  exclusively  to  jobbers 
whom  we  find  voluntarily  conforming  to  our 
wishes  as  to  the  disposition  by  them  of  such 
goods. 

'*We  shall  make  all  specific  sales,  except  of 
Howard  watches,  without  any  restrictions  what- 
ever. 

"Whether  or  not  our  wishes  as  hereinafter 
stated  be  complied  with,  we  shall  from  time  to 
time  exercise  our  right  to  select  the  jobbers  to 
whom  we  shall  sell  our  goods,  and  we  shall,  ir- 
respective of  any  past  dealings,  refuse  to  sell 
to  those  jobbers  who,  in  our  opinion,  handle  our 
goods  in  a  manner  detrimental  to  our  interests, 
or  whose  dealings  with  us  are  in  any  other  respect 
unsatisfactory. 

"Our  present  wishes  are  as  follows: 

' '  First.  Our  goods  bearing  the  following  trade- 
marks, to  wit:  Boss,  Crescent,  Planet,  Crown, 
Silveroid,  and  Excelsior,  will  be  sold  by  us  to  our 
jobbers  at  fixed  prices,  subject  to  a  cash  discount, 
and  we  desire  that  sales  of  these  goods  by  jobbers, 
whether  to  retailers  or  to  jobbers,  shall  be  without 
deviation  at  the  prices  fixed  by  us  for  sales  to 
retailers,  subject  only  to  the  cash  discount. 

"Second.     Howard    watches    are    sold    only 


28  Business  Competition 

under  the  terms  of  the  license  covering  their 
sales. 

**  Third.  On  all  our  other  goods  we  place  no 
restrictions  as  to  the  prices  at  which  they  are  to  be 
sold  by  jobbers. 

"Fourth.  And,  further,  we  desire  that  the 
jobbers  to  whom  we  sell  our  goods  bearing  the 
following  trade-marks,  to  wit:  Howard,  Boss, 
Crescent,  Planet,  Crown,  Silveroid,  and  Excelsior, 
shall  not  deal  in  any  watch-cases  other  than 
those  manufactured  by  us. 

"Fifth.  All  advertisements  of  our  goods  will 
be  subject  to  our  approval." 

Not  such  a  very  threatening  or  oppressive 
letter,  it  would  seem!  Probably  a  good  many 
readers  of  these  pages  have  written  quite  as  vigor- 
ous expressions  of  their  wishes.  Yet  see  what  the 
court  said  about  it,  in  191 5,  when  the  company  w^s 
tried  on  a  charge  of  conspiracy  in  restraint  of 
trade: 

"Officers  or  agents  of  the  company  followed 
up  this  circular  by  visits  to  the  selected  jobbers — 
although  perhaps  not  to  all  of  them — and  assured 
them  that  the  letter  meant  exactly  what  it  said, 
and  that  the  policy  outlined  therein  would  be 
rigorously  carried  out.    And  it  was  insisted  upon 


Conspiracy  29 

and  was  carried  out.  Some  of  the  jobbers  assented 
to  the  company's  wishes,  and  with  more  or  less 
reluctance  gave  up  buying  from  other  manu- 
facturers, while  the  jobbers  that  refused  to  assent 
were  cut  off  from  the  Keystone  product  altogether, 
unless  they  obtained  it  through  surreptitious 
channels. 

''We  do  not  think  it  necessary  to  spend 
time  over  the  foregoing  circular.  We  regard  it, 
not  as  a  request,  but  as  a  threat;  and  not  as  an 
empty  threat,  but  as  a  real  menace  from  a  strong 
manufacturer.  The  defendant  company  attempts 
to  justify  both  the  circular  and  its  own  conduct 
before  and  after  the  circular  was  issued,  by  the 
argument  that  the  selected  jobbers  were  its  ''exclu- 
sive agents,"  and  therefore  were  properly  bur- 
dened with  any  conditions  to  which  they  might 
agree.  But  the  relation  of  principal  and  agent 
did  not  exist  between  the  company  and  the 
jobbers.  They  were  not  agents,  paid  for  their 
services  by  salary  or  commission,  and  owing  a 
duty  to  report  and  account;  they  were  merely 
customers  of  the  defendant  company,  who  bought 
its  unpatented  cases  by  a  transaction  of  outright 
purchase,  and  thereby  took  a  complete  title  to  the 
cases  and  acquired  an  unrestricted  right  to  sell. 


30  Business  Competition 

And,  moreover,  it  should  be  observed  that  they 
were  already  established  customers,  not  only  of 
the  defendant  company,  but  also  of  its  competitors, 
and  had  already  become  trade  outlets  for  every 
manufacturer  of  cases  whose  wares  they  had  been 
accustomed  to  buy.  Now,  what  the  defendant 
company  did  was  either  to  close  these  already 
existing  and  already  utilized  outlets,  or  to  narrow 
them  materially, .  so  far  as  the  cases  of  its  com- 
petitors were  concerned;  and  we  think  the  pro- 
position need  not  be  discussed  that  this  was  pro 
tanto  a  direct  and  tmlawful  restraint  of  trade. 

*'And  it  is  not  sufficient  to  answer  that  these 
competitors  appear  to  have  withstood  the  attack 
with  more  or  less  success,  and  that  their  total 
trade  did  not  always,  or  even  often,  diminish. 
Where  or  how  they  made  up  the  loss  that  they 
must  have  sustained  is  not  material;  it  is  certain 
that  they  must  have  lost  whatever  trade  they  had 
previously  enjoyed  with  those  jobbers  that  yielded 
to  the  threat  of  the  defendant's  circular;  and  it 
seems  dear,  therefore,  that  in  this  degree,  at 
least,  there  was  an  unlawful  restraint  of  trade.  In 
other  words,  if  this  section  of  the  trade  had  not 
been  taken  away  from  the  defendant's  competitors, 
we  may  reasonably  suppose  that  they  would  have 


Conspiracy  31 

retained  it ;  and  this  fact  seems  to  be  a  final  answer 
to  much  of  the  evidence,  the  tables  and  lists  of 
varying  scope  and  value  that  have  been  laid  before 
us,  and  were  offered  to  show  that  on  the  whole 
not  much  damage,  if  any,  was  done  by  the  offend- 
ing circular  and  the  defendant's  unlawful  conduct  '* 
(italics  added). 

By  this  decision  the  company  was  absolved 
on  practically  all  counts  except  with  respect  to 
the  letter  above  quoted.  In  the  final  decree  the 
court  ordered : 

''Second:  The  defendant  corporation,  its  di- 
rectors, officers,  agents,  and  servants,  as  well  as 
the  individual  defendants,  and  all  other  persons 
when  acting  for  or  in  behalf  of  the  defendant  cor- 
poration, are  therefore  hereby  enjoined  jointly 
and  severally  as  follows : 

**(a)  From  carrying  out  in  any  manner  or  by 
any  means  whatsoever,  the  policy  and  system 
manifested  in  said  letter,  and  in  the  other  acts 
and  declarations  referred  to." 

HOW  SURROUNDING  CIRCXMSTANCES  SHOW  INTENT 

Now  note  right  here  a  point,  which  will  be 
brought   out   again   and   again   throughout   this 


32  Business  Competition 

discussion,  that  the  court  in  its  endeavour  to 
discover  the  motive  which  prompted  the  letter 
asked  at  once,  ''What  happened?"  The  actual 
text  under  discussion  was  mild  enough,  but  when 
taken  in  conjunction  with  the  acts  which  directly 
followed,  it  fell  under  condemnation.  In  the 
eyes  of  the  court  it  was  one  thing  to  request 
jobbers  to  refrain  from  handling  watch-cases  of 
other  makes,  and  quite  another  to  see  that  they 
carried  out  the  request  under  pain  of  being  cut 
off  from  supplies  of  the  company's  watch-cases. 
Taking  all  of  the  circumstances  together,  the 
court  decided  that  the  intent  of  the  letter  was 
to  prevent  the  leading  jobbers  of  the  country 
from  selling  competing  goods.  That,  in  itself, 
constituted  an  unlawful  restraint  of  trade,  though 
at  practically  all  other  points  the  company  was 
exonerated.  In  other  words,  the  success  of  the 
company  in  carrying  out  its  request  led  the  court 
to  conclude  that  it  was  the  result  of  a  definite 
plan. 

We  shall  see  precisely  the  same  line  of  reasoning 
applied  in  the  Cream  of  Wheat  case  where  the 
court  arrived  at  quite  the  opposite  conclusion 
because  the  surrounding  circumstances  were  so 
different.     The  court  in  its  opinion  in  that  case 


Conspiracy  33 

referred  to  certain  letters  which  the  Cream  of 
Wheat  Company  had  sent  to  wholesale  dealers. 
The  first  letter  is  dated  at  Minneapolis,  January 
25,  1913,  and  reads: 

"  To  OUR  Customers: 

"  We  hereby  state  our  terms  of  sale,  as  follows: 
"  We  sell  only  to  exclusive  wholesalers,  our  price 
being  $4.10  per  case,  36  packages,  deHvered  f.  o.  b. 
cars  at  customer's  city,  terms  30  days  net  or  I 
per  cent,  discount  for  cash  ten  days  from  date  of 
invoice.  We  do  not  split  cars  delivering  less  than 
car-lots  at  car-lot  prices  where,  for  instance,  our 
customer  has  one  or  more  branch  houses.  We  do 
not  make  drop  shipments.  In  carload  lots  the 
price  delivered  is  $3.95.  We  request  all  of  our 
customers  that  they  sell  only  to  the  retail  trade 
at  a  price  of  $4.50  per  case,  with  a  discount  of 
not  more  than  one  per  cent,  for  cash.  Where 
our  customer  buys  in  carload  lots  we  request 
that  he  shall  not  divide  this  car  with  other  job- 
bers, but  retain  the  car  entirely  for  his  own  ex- 
clusive use  and  resell  only  to  his  retail  trade. 
We  request  that  our  customers  shall  not  sell 
to  any  other  wholesaler  to  whom  we  ourselves 
will  not  sell  for  reasons  that  seem  satisfactory 
3 


34  '  Business  Competition 

to  us  and  to  the  best  interests  of  the  trade  at 
large. 

**  Yours  truly, 

"  Cream  of  Wheat  Co." 

A  subsequent  letter  is  dated  March  13,  19 15, 
and  was  addressed  to  the  company's  jobbers 
individually.     It  runs  as  follows : 

"Dear  Sir: 

*'The  Great  Atlantic  8c  Pacific  Tea  Company  is 
selling  Cream  of  Wheat  to  the  consumer  at  twelve 
cents  per  package.  As  soon  as  we  were  informed 
of  the  fact  we  discontinued  sales  to  them.  They 
have  announced  that  they  propose  to  continue 
to  sell  Cream  of  Wheat  at  that  price,  and  in  order 
to  do  so,  since  they  can  no  longer  buy  direct  from 
this  company,  they  will  undoubtedly  endeavour 
to  secure  their  supplies  directly  and  indirectly, 
through  both  the  jobbing  and  the  retail  trade. 

"Twelve  cents  per  package  is  below  the  cost 
of  every  regular  retail  grocery rhan.  If  the  Great 
Atlantic  &  Pacific  Tea  Company  can  continue 
sales  at  that  price,  at  whatever  temporary  cost  to 
themselves,  they  will  destroy  the  Cream  of  Wheat 
trade  of  every  legitimate  retail  dealer  with  whom 
they  come  in  competition. 


Conspiracy  35 

"Moreover,  i!  they  can  succeed  in  destroying 
the  trade  of  the  legitimate  retailer  in  one  article, 
by  this  means,  the  process  will  inevitably  be 
extended  with  other  articles,  to  the  eventual 
complete  demoralization  of  the  trade  of  the  legiti- 
mate jobber  as  well  as  of  the  trade  of  the  legitimate 
retailer. 

"  The  destruction  of  trade  rivals  by  quotations 
below  cost,  at  whatever  temporary  loss  to  them- 
selves, is  precisely  the  kind  of  imfair  competition 
that  has  been  so  strongly  condemned  by  the 
courts  and  by  pubHc  opinion,  when  practised  by 
other  large  corporations. 

"We  are  certain  that  you  will  not  permit  your 
organization  to  be  a  party  to  this  attempt  to 
undermine  your  own  and  your  customer's 
trade,  and  we  request,  therefore,  that  you 
watch  with  unsual  care  your  disposals  of  Cream 
of  Wheat,  in  order  that  no  quantity,  at  any 
price,  shall  reach,  directly  or  indirectly,  the  Great 
Atlantic  &  Pacific  Tea  Company,  to  enable  them 
to  continue  their  present  menace  to  the  legitimate 
trade. 

"Yours  truly, 
"  Cream  of  Wheat  Company, 
"  By  F.  W.  Clifford,  Treas.*' 


36  Business  Competition 

Those  were  the  letters  upon  which  the  plaintiff 
in  the  case  chiefly  relied  to  prove  an  attempt  to 
restrain  trade  on  the  part  of  the  Cream  of  Wheat 
Company.  The  court  applied  the  same  reasoning 
which  was  so  effective  in  the  case  previously 
quoted,  but  arrived  at  a  different  conclusion.  I 
quote  now  from  its  decision : 

"The  defendant  also  sent  out  circulars  to  the 
jobbing  trade  pointing  out  the  'cut-rate*  practices 
of  plaintiff,  and  asking  the  recipients  to  see  to  it 
*  that  no  quantity  (of  Cream  of  Wheat)  at  any  price 
shall  reach  directly  or  indirectly  the  plaintiffs, 
to  enable  them  to  continue  their  present  menace 
to  the  legitimate  trade.' 

"In  result,  the  situation  when  suit  was  brought 
was  that  plaintiff  could  not  make  any  money  on 
Cream  of  Wheat  sold  at  twelve  cents,  because  it 
could  not  get  carload  rates:  but  no  great  success 
attended  defendant's  efforts  to  prevent  jobbers 
selling  to  plaintiff — there  were  and  are  too  many 
men  quite  willing  to  let  the  Atlantic  &  Pacific  Co. 
lose  some  money,  as  long  as  they  made  a  little." 

In  other  words,  the  non-success  of  the  proposal, 
and  the  absence  of  other  aggravating  circum- 
stances, led  the  court  to  conclude  that  the  result  of 
the  plan  was  not  to  restrain  trade  illegally.     In 


Conspiracy  37 

comparing  the  Cream  of  Wheat  letters  with  those 
of  the  watch  company,  it  must  always  be  noted  that 
the  latter,  because  of  the  surrounding  and  resulting 
circumstances,  was  strongly  condemned,  while  the 
former,  because  of  the  surrounding  and  resulting  cir- 
cumstances, escaped  condemnation. 

SUPREME  COURT  ANALYSIS  OF  AN   "INFORMATION 

blank'* 

I  come  now  to  a  form  of  commtmication  which 
bears  on  its  face  no  evidence  whatever  as  to 
the  purpose  for  which  it  was  issued,  and  which 
to  all  appearances  is  merely  a  request  for  informa- 
tion. It  is  the  form  known  as  an  "Official  Report " 
which  was  issued  by  certain  associations  of  retail 
lumber  dealers  that  were  ordered  to  be  dissolved 
in  a  case  which  was  finally  decided  by  the  Supreme 
Court  of  the  United  States.  This  is  the  case 
which  was  approvingly  cited  by  the  court  in  the 
watch  case  quoted  above.  The  text  of  the  so- 
called  "Official  Report'*  is  as  follows: 

"Official  Report 

"  (Name  of  the  Particular  Association 

Circulating  it). 

"  Statement  to  Members  (with  the  Date). 


38  Business  Competition 

"  You  are  reminded  that  it  is  because  you  are 
members  of  our  Association  and  have  an  interest 
in  common  with  your  fellow  members  in  the 
information  contained  in  this  statement,  that 
they  communicate  it  to  you;  and  that  they  com- 
municate it  to  you  in  strictest  confidence  and 
with  the  imderstanding  that  you  are  to  receive  it 
and  treat  it  in  the  same  way. 

"  The  following  are  reported  as  having  solicited, 
quoted,  or  as  having  sold  direct  to  the  consumers: 

"  (Here  follows  a  list  of  the  names  and  addresses 
of  various  wholesale  dealers). 

"Members  upon  learning  of  any  instance  of  per- 
sons soliciting,  quoting,  or  selling  direct  to  consum- 
ers, should  at  once  report  same,  and  in  so  doing 
should,  if  possible,  supply  the  following  information  : 

'*  The  number  and  initials  of  car. 

'*  The  name  of  consumer  to  whom  the  car  is  con- 
signed. 

*'  The  initials  or  name  of  shipper. 

**  The  date  of  arrival  of  car. 

"  The  place  of  delivery. 

"  The  point  of  origin." 

Now  the  importance  which  the  Supreme  Court 
attached  to  this  particular  document  is  evident 


Conspiracy  39 

from  the  fact  that  the  court  specifically  declared 
that  "the  decree  entered,  declaring  the  defendants 
named  to  be  in  a  combination  or  conspiracy  to 
restrict  and  restrain  competition,  depends  solely 
upon  the  method  adopted  and  being  used  by  the 
defendants  in  the  distribution  of  the  information 
contained  in  that  same  document*  (italics  added). 
It  is  extremely  interesting  to  follow  the  reasoning 
of  the  highest  court  in  the  land  with  respect  to  the 
above-quoted  form  letter,  which  on  its  face  is 
entirely  innocent  of  any  evil  intent.  The  court, 
as  always,  goes  at  once  to  the  question  of  intent : 

"The  reading  of  the  official  report  shows  that  it 
is  intended  to  give  confidential  information  to 
the  members  of  the  associations  of  the  names  of 
wholesalers  reported  as  soliciting  or  selling  directly 
to  consumers,  members  upon  learning  of  any  such 
instances  being  called  upon  to  promptly  report 
the  same,  supplying  detailed  information  as  to 
the  particulars  of  the  transaction.  When  viewed 
in  the  light  of  the  history  of  these  associations 
and  the  conflict  in  which  they  were  engaged  to 
keep  the  retail  trade  to  themselves  and  to  pre- 
vent wholesalers  from  interfering  with  what  they 
regarded  as  their  rights  in  such  trade,  there  can  be 
but  one  purpose  in  giving  the  information  in  this 


40  Business  Competition 

form  to  the  members  of  the  retail  associations  of  the 
names  of  all  wholesalers  who  by  their  attempt  to 
invade  the  exclusive  territory  of  the  retailers^  as  they 
regard  it,  have  been  guilty  of  unfair  competitive 
trade.  These  lists  were  qiiite  commonly  spoken  of 
as  blacklists,  and  when  the  attention  of  a  retailer 
was  brought  to  the  name  of  a  wholesaler  who  had 
acted  in  this  wise,  it  was  with  the  evident  purpose 
that  he  should  know  of  such  conduct  and  act 
accordingly.  True  it  is  that  there  is  no  agreement 
among  the  retailers  to  refrain  from  dealing  with 
listed  wholesalers  J  nor  is  there  any  penalty  annexed 
for  the  failure  so  to  do,  but  he  is  blind  indeed  who 
does  not  see  the  purpose  in  the  predetermined  and 
periodical  circulation  of  this  report  to  put  the  ban 
upon  wholesale  dealers  whose  names  appear  in  the 
list  of  unfair  dealers  trying  by  methods  obnoxious 
to  the  retail  dealers  to  supply  the  trade  which  they 
regard  as  their  own.  Indeed  this  purpose  is 
practically  conceded  in  the  brief  of  the  learned 
counsel  for  the  appellants: 

"  *  It  was  and  is  conceded  by  defendants  and  the 
Court  below  found  that  the  circulation  of  this 
information  would  have  a  natural  tendency  to 
cause  retailers  receiving  these  reports  to  with- 
hold patronage  from  listed  concerns.    That  was,  of 


Conspiracy  41 

course,   the  very  object  of  the  defendants   in 
circulating  them.  * " 

THE  "natural  tendency"  ANALYSED 

' '  In  other  words, ' '  the  Supreme  Court  continues, 
"the  circulation  of  such  information  among  the 
hundreds  of  retailers  as  to  the  alleged  delinquency 
of  a  wholesaler  with  one  of  their  number  had  and 
was  intended  to  have  the  natural  effect  of  causing 
such  retailers  to  withhold  their  patronage  from  the 
concern  listed.  .  .  . 

"The  circulation  of  these  reports  not  only  tends 
to  directly  restrain  the  freedom  of  commerce 
by  preventing  the  listed  [wholesale]  dealers  from 
entering  into  competition  with  retailers,  as  was 
held  by  the  District  Court,  but  it  directly  tends 
to  prevent  other  retailers,  who  have  no  personal 
grievance  against  him  and  with  whom  he  might 
trade,  from  so  doing,  they  being  deterred  solely 
because  of  the  influence  of  the  report  circulated 
among  the  members  of  the  associations.  In  other 
words,  the  trade  of  the  wholesaler  with  strangers 
was  directly  affected,  not  because  of  any  supposed 
wrong  which  he  had  done  to  them,  but  because 
of  the  grievance  of  a  member  of  one  of  the  associa- 
tions, who  had  reported  a  wrong  to  himself,  which 


42  Business  Competition 

grievance  when  brought  to  the  attention  of  others 
it  was  hoped  would  deter  them  from  dealing  with 
the  offending  party.  This  practice  takes  the 
case  out  of  those  normal  and  usual  agreements  in 
aid  of  trade  and  commerce  which  ma}'-  be  found 
not  to  be  within  the  act,  and  puts  it  within  the 
prohibited  class  of  undue  and  unreasonable  re- 
straints, such  as  was  the  particular  subject  of 
condemnation  in  Loewe  vs.  Lawlor  [the  so-called 
Danbury  Hatters'  case  ]. 

"The  argument  that  the  course  pursued  is 
necessary  to  the  protection  of  the  retail  trade 
and  promotive  of  the  public  welfare  in  providing 
retail  facilities  is  answered  by  the  fact  that  Con- 
gress, with  the  right  to  control  the  field  of  inter- 
state commerce,  has  so  legislated  as  to  prevent 
resort  to  practices  which  unduly  restrain  competi- 
tion or  unduly  obstruct  the  free  flow  of  such 
commerce,  and  private  choice  of  means  must 
yield  to  the  national  authority  thus  exerted.  .  .  . 

"A  retail  dealer  has  the  unquestioned  right  to 
stop  dealing  with  a  wholesaler  for  reasons  sufficient 
to  himself,  and  may  do  so  because  he  thinks  such 
dealer  is  acting  unfairly  in  trying  to  undermine 
his  trade.  'But,'  as  was  said  by  Mr.  Justice 
Lurton,  speaking  for  the  court  in  Grenada  Lumber 


Conspiracy  43 

Co.  vs.  Mississippi  [already  discussed]  *  when  the 
plaintiffs  in  error  combine  and  agree  that  no  one 
of  them  will  trade  with  any  producer  or  whole- 
saler who  shall  sell  to  a  consumer  within  the 
trade  range  of  any  of  them,  quite  another  case 
is  presented.  An  act  harmless  when  done  by  one 
may  become  a  public  wrong  when  done  by  many 
acting  in  concert,  for  it  then  takes  on  the  form  of  a 
conspiracy,  and  may  be  prohibited  or  punished,  if 
the  result  be  hurtful  to  the  public  or  to  the  in- 
dividual against  whom  the  concerted  action  is 
directed.' 

"When  the  retailer  goes  beyond  his  personal 
right,  and,  conspiring  and  combining  with  others 
of  like  purpose,  seeks  to  obstruct  the  free  course 
of  interstate  trade  and  commerce  and  to  unduly 
suppress  competition  by  placing  obnoxious  whole- 
sale dealings  under  the  coercive  influence  of  a  con- 
demnatory report  circulated  among  others,  actual 
or  possible  customers  oj  the  offenders,  he  exceeds 
his  lawful  rights,  and  such  action  brings  him  and 
those  acting  with  him  within  the  condemnation  of 
the  act  of  Congress,  and  the  District  Court  was 
right  in  so  holding"  (italics  added). 

I  need  only  add  that,  in  this  Lumber  association 
case,  "the  defendants  were  enjoined  from  combin- 


44  Business  Competition 

ing,  conspiring,  or  agreeing  together  to  distribute 
and  from  distributing  to  members  of  the  asso- 
ciations named  or  any  other  person  or  persons 
any  information  showing  soliciting,  quotations,  or 
sales  and  shipments  of  lumber  and  lumber  products 
from  manufacturers  and  wholesalers  to  consumers 
of  or  dealers  in  lumber,  and  from  the  preparation 
and  distribution  of  the  lists  above  described  as  the 
'Official  Report'  or  the  use  of  a  similar  device'* 
(italics  added). 

DEMONSTRATING  A  *' CONTINUING  CONSPIRACY*' 

As  already  stated,  the  files,  office  records,  and 
scrap-books  containing  the  correspondence  and 
instructions  of  bygone  years  are  a  fruitful  source  of 
evidence  when  the  Government  is  on  the  trail  of 
a  conspiracy  to  restrain  trade.  No  man,  of  course, 
can  alter  the  record  that  is  contained  in  those 
repositories,  but  he  can — and  by  all  means  should 
— so  regulate  his  present  acts  and  communications 
that  they  cannot  be  connected  with  the  possible 
careless  phraseology  of  former  years.  In  order 
to  hold  an  individual  or  a  concern  liable  for  a 
conspiracy  to  restrain  trade,  the  Government 
must  show  that  the  conspiracy  continued  to  exist 
up  to  a  period  within  three  years  prior  to  the  filing 


Conspiracy  45 

of  the  petition,  or,  in  a  criminal  case,  three 
years  prior  to  the  finding  of  the  indictment.  The 
Government  can  go  back  as  far  as  it  likes  in  its 
search  for  evidence  of  the  existence  of  a  conspiracy, 
but  if  there  is  a  serious  break  in  the  continuity  of 
the  evidence  before  the  beginning  of  the  three- 
year  period,  and  if  no  evidence  is  discovered 
which  belongs  within  the  three  years,  there  is 
every  reason  to  maintain  that  any  past  con- 
spiracy which  might  have  existed  has  long  been 
abandoned.  Therefore,  it  is  essential  to  use 
vigilance  in  keeping  all  present  activities  well 
within  legal  bounds. 

The  record  in  another  recent  case  is  particularly 
significant  as  showing  the  importance  which  is 
attached  to  letters  and  sales  bulletins,  some  of 
them  quite  venerable  with  antiquity,  when  they 
can  be  connected  with  other  things  which  occurred 
in  the  more  immediate  past.  After  the  Govern- 
ment had  obtained  judgment  at  the  trial,  the  case 
was  heard  by  the  Circuit  Court  of  Appeals,  which 
reversed  the  judgment  of  the  lower  court  and 
remanded  the  case  for  new  trial.  The  Circuit 
Court  of  Appeals,  however,  laid  great  stress  upon 
the  various  documents  presented  by  the  Govern- 
ment, and  certain  of  the  company's  publications 


46  Business  Competition 

for  the  guidance  of  the  sales  force.  I  cannot  make 
my  point  clearer  than  by  quoting  from  its  decision. 
The  first  communication  it  cites  was  taken  from  a 
publication  issued  in  1892 — nineteen  years  before 
the  present  prosecution  was  begun! 

**In  an  issue  of  a  publication  of  the  company," 
said  the  court,  "seemingly  for  distribution  amongst 
its  officers  and  agents,  of  date  May  i,  1892,  occur 
these  statements : 

" '  If  the  opposition  knew  what  is  in  store  for  them 
they  would  not  waste  any  more  time  and  money 
staying  in  the  business.  They  are  all  beginning 
to  realize  that  there  is  no  hope  for  them.' 

*'  'It  is  only  a  question  of  whether  we  propose  to 
spend  the  money  to  keep  down  opposition.  If 
we  continue,  it  is  absolutely  certain  no  opposition 
company  can  stand  against  this  company  and  its 
agents.  If  necessary,  we  will  spend  five  times  as 
much  money  as  we  have  already  done,  in  order 
to  down  opposition.  If  they  really  believe  this, 
they  will  throw  up  the  sponge  and  quit.' 

"  'We  are  receiving  overtures  to  buy  out  op- 
position. We  will  not  buy  them  out.  We  do 
not  buy  out;  we  knock  out.* 

"In  an  issue  August  i,  1895,  occurs  this  state- 
ment: 


Conspiracy  47 

'*  *We  are  determined  to  absolutely  control  the 

cash  register  business/ 

*'And  in  an  issue  of  date  March  25,  1897,  after 
setting  forth  the  policy  of  the  company  of  frankly 
informing  a  competitor  of  the  purpose  to  drive 
him  out  of  business,  occurs  this  statement : 

"  'This,  it  is  true,  is  what  is  called  "securing  a 
monopoly";  but  we  think  there  can  be  no  possible 
economic  or  other  objection  to  it.  Cash  registers 
are  not  a  necessity  of  life.  Any  one  who  chooses 
can  do  business  without  them,  thus  contributing 
nothing  to  the  "monopoly."  '  " 

The  court  simply  brushed  aside  the  fact  that 
throughout  these  years  the  entire  business  com- 
munity believed — and  the  Government  tacitly 
concurred — that  the  Sherman  Act  then  had  no 
application  to  manufacturing  concerns,  and  the 
further  fact  that  the  defendants'  business  was 
protected  by  basic  patents  which  constituted 
their  competitors  simple  infringers  doing  business 
in  violation  of  the  defendants'  patent  rights. 

TOO    VIGOROUS    PHRASEOLOGY    CONDEMNED 

Further  on  in  its  opinion  the  court  said: 
"In  the  publication  of  the  company  and  in  the 
communications  between  the  officers  and  agents 


48  Business  Competition 

having  to  do  with  competition,  terms  of  warfare 
were  not  infrequently  used,  such  as  battle,  fight, 
enemy,  ammunition,  shot,  whipped,  victory,  and 
flags  flying.  During  that  time  all  the  competitors 
named  then  in  existence  retired  from  the  field.'* 

Particularly  important  is  the  consideration 
given  by  the  court  to  a  letter  upon  which  the 
defence  chiefly  relied  as  showing  that  the  illegal 
conspiracy  had  been  abandoned  more  than  three 
years  before  the  date  of  the  indictment. 

*'We  have  shown,"  said  the  court,  "that  the 
Government's  evidence  tends  to  establish  the  con- 
tinuance of  the  conspiracy  almost  up  to  the  very 
beginning  of  the  three  years.  Something  hap- 
pened shortly  after  the  beginning  of  the  three 
years  calculated  to  terminate  the  conspiracy, 
which  may  account  for  nothing  being  done  by  the 
defendants  in  error  within  the  three  years  indicat- 
ing the  continued  existence  of  the  conspiracy,  and 
which,  if  it  was  the  cause  of  its  termination,  involves 
its  continuance  into  the  three  years.  That  was 
action  on  the  part  of  James  to  call  the  National 
to  accoimt  for  its  attitude  towards  and  action 
against  the  American.  ... 

"In  the  nature  of  things,  some  time  must  have 
been  taken  to  prepare  for  the  proceeding,  and  the 


Conspiracy  49 

evidence  disclosed  that  James  caused  affidavits 
to  be  taken  of  unfair  acts  towards  the  American 
by  National  agents  as  far  back  as  in  March,  1909. 
It  is  not  unlikely  that  the  National  became  aware 
of  this  contemplated  proceeding,  and  knowledge 
of  it  was  calculated  to  cause  it  to  take  steps  to 
end  all  action  against  the  American  which  could 
reasonably  be  complained  of.  And  we  find  that 
on  April  I,  1909,  the  plaintiff  in  error  Pflum  sent 
the  following  letter  to  all  the  district  managers, 
to  wit: 
*'  'To  All  District  Managers: 

'**.  .  .  .  In  the  various  conventions  I  have 
attended,  I  found  that  some  of  the  newer  members 
in  the  districts  are  not  thoroughly  clear  on  the  best 
way  to  handle  sales  made  by  other  companies. 
Please  see  that  every  agent  in  your  district  thor- 
oughly understands  our  position  in  the  matter. 

"  'You  know  what  this  policy  is,  but  in  brief 
will  say  that  in  no  case  will  we  permit  any  of  our 
agents  to  misrepresent  cash  registers  manu- 
factured by  other  companies,  neither  will  we 
permit  any  agent  or  person  in  our  employ  to 
induce  any  purchaser  of  a  cash  register  made  by 
any  other  company  to  break  his  contract  and 
return  the  register  to  the  manufacturer.     With  the 


50  Business  Competition 

line  of  registers  that  our  agents  now  have,  they 
are  able  to  show  the  superiority  of  Nationals  over 
those  of  any  other  make  and  at  lower  prices. 

"  'There  has  been  no  violation  of  our  policies 
that  I  laiow  of,  but  I  give  you  this  information 
because  of  the  inquiries  received  from  the  newer 
men  in  the  field. 

"  'Please  see  that  these  instructions  are  carried 
out  in  every  detail  and  that  the  new  men  are  so 
instructed  on  entering  the  field.'  " 

The  court  read  this  letter  entirely  in  the  light  of 
the  possible  motive  supplied  by  James's  "contem- 
plated proceeding. ' '     The  court  said : 

"There  is  room  to  claim  that  such  is  the  only 
reasonable  ground  to  account  for  this  letter  being 
written  and  sent  out.  If  so,  there  is  room  to 
claim,  further,  that  the  conspiracy  continued  at 
least  until  then. " 

Here  is  a  letter  that  embodies  what  is  practically 
a  direct  order  to  the  company's  sales  force  to 
act  in  accordance  with  the  law,  and  a  plain  dis- 
avowal of  any  intent  to  restrain  trade.  Never- 
theless, the  court,  as  usual,  goes  directly  to  the 
question  of  the  motive  which  led  to  the  framing 
of  the  letter.  There  was  room  to  conclude,  says 
the  court  in  the  elaborate  passage  above  quoted^ 


Conspiracy  51 

that  the  letter  might  have  been  written  because 
the  company  had  heard  of  the  threatened  prosecu- 
tion, and  hoped  thereby  to  escape  a  suit.  That 
being  possible,  and  the  surrounding  circumstances 
being  what  they  were,  the  court  was  willing  to 
let  the  jury  put  that  construction  upon  it  if  it 
were  so  disposed. 


CHAPTER  III 

GETTING  YOUR  COMPETITOR'S  BUSINESS 

In  a  previous  chapter  I  endeavoured  to  point 

out  convincingly  the  fact  that  no  manufacturer  or 

merchant  doing  an  interstate  business  is  so  small 

or  so  inconspicuous  as  to  be  immune  from  possible 

prosecution  under  the  anti- trust  laws.     His  acts, 

and  the  acts  of  his  salesmen  and  agents,  may  at 

any  time  be  used  as  evidence  of  a  conspiracy  in 

restraint  of  trade,  and  the  great  resources  of  an 

important  branch   of   the   Federal   Government 

may  be  behind   the  prosecution.     There  is   no 

certainty,  of  course,  that  the  Government  will 

win  its  case  in  the  courts.     Some  very  important 

cases  have  been  lost  by  the  Government  in  the 

lower  courts,  and  are  now  before  the  Supreme 

Court  on  appeal.     But  the  Government  enjoys 

one    important    advantage;     it    can    defray    its 

expenses  out  of  the  taxpayers*  money,  while  the 

defendant  is  obliged  to  pay  out  of  his  own  funds. 

52 


Competitor's  Business  53 

The  defendant  in  a  recent  important  case  has 
announced  that  its  defence  has  aheady  cost  more 
than  $300,000,  and  the  case  is  not  yet  terminated. 
The  almost  imHmited  resources  of  the  Govern- 
ment, and  the  certainty  that  any  individual 
defendant  will  be  obliged  to  pay  out  large  sums — 
perhaps  seriously  affecting  its  earnings,  or  threaten- 
ing actual  bankruptcy — ^have  led  a  great  many 
concerns  which,  have  fallen  under  suspicion  to 
accept  what  are  known  as  "consent  decrees." 
That  is  to  say,  they  go  into  court  and  formally 
** admit**  the  allegations  of  the  Government. 
Thereupon  a  decree  is  entered  which  perpetually 
enjoins  them  from  future  acts  of  the  sort  which 
have  been  enumerated  in  the  Government's 
complaint.  Sometimes  a  defendant  will  **  con- 
sent*' to  a  decree  because  he  knows  that  his  case 
is  weak,  and  the  probabilities  are  that  the  Govern- 
ment will  win  in  the  courts.  Very  often,  however, 
decrees  are  consented  to  solely  because  the  defen- 
dant is  unwilling  or  unable  to  stand  the  expense  of 
a  trial.  And  under  the  head  of  "expense**  we  \ 
must  include  three  things :  the  actual  money  which 
is  paid  out  of  the  concem*s  treasury,  the  loss  of 
time  and  demoralization  of  the  organization  while 
the  suit  is  pending,  and  last,  but  by  no  means 


54  Business  Competition 

least,  the  injury  to  the  good  will  of  the  business. 
The  public  impression  that  the  business  methods 
of  a  concern  are  so  conspicuously  bad  that  it  is 
necessary  for  the  Federal  Government  to  suppress 
them  may  cost  more  in  the  end  than  all  the  other 
items  put  together. 

Thus  we  see  that  in  a  good  many  cases — ^by 
far  the  majority,  in  fact — the  Government  is  the 
arbiter  and  not  the  courts.  It  is  the  Government's 
view  of  what  constitutes  wrongful  restraint  of 
trade,  and  not  the  view  of  the  courts,  which  really 
is  important  to  the  average  business  man.  The 
courts  are  continually  modifying  the  doctrine  in 
decrees  handed  down  in  litigated  cases ;  but  unless 
a  man  is  prepared  to  stand  up  and  fight  for  the 
legitimacy  of  his  business  methods,  cost  what  it 
may,  he  cannot  afford  to  disregard  the  Govern- 
ment's theory  as  to  what  constitutes  unlawful 
restraint  of  trade. 

WHAT  THE  GOVERNMENT   REGARDS  AS   UNLAWFUL 

True,  the  Government  has  never  furnished  the 
business  community  with  a  list  of  all  the  competi- 
tive acts  which  it  regards  with  suspicion,  as 
indicating  the  existence  of  a  conspiracy  to  crush 
competition.     Such   a  list  would   be  impossible 


Competitor's  Business  55 

to  cx)mpile  in  the  first  place,  and  in  the  second 
place  it  would  simply  represent  an  invitation 
to  the  wilful  wrongdoer  to  invent  some  method 
of  restraint  which  might  not  be  enumerated. 
But  in  the  consent  decrees  referred  to  above, 
one  gets  a  pretty  comprehensive  view  of  the 
general  contentions  of  the  Government  on  this 
point.  Indeed,  it  is  possible  to  go  even  further 
than  that,  and  supplement  the  consent  decrees 
with  the  claims  made  by  the  Government  in  its 
bills  of  complaint  in  some  of  the  cases  which  are 
still  pending.  It  should  be  borne  in  mind,  in 
connection  with  the  discussion  of  the  cases  which 
follow,  that  the  points  raised  represent  merely  the 
Government's  partisan  view  of  the  matter;  that 
the  courts  have  not  passed  upon  the  merits  of  the 
specific  instances  alleged ;  and  that,  if  and  when  the 
courts  do  pass  upon  them,  a  different  conclu- 
sion may  be  reached.  In  other  words,  it  is  not 
absolutely  certain  that  all  of  the  competitive 
practices  set  forth  in  what  follows  are  unlawful; 
but  it  is  certain  that  the  Government  now  maintains 
that  they  are  unlawful. 

The  kind  of  acts  which  the  Government  regards 
as  evidence  of  unlawful  intent  in  this  respect 
were  set  forth  with  considerable  detail  in  the 


56  Business  Competition 

petition,  in  1913,  in  a  suit  which  subsequently  th« 
Government  voluntarily  discontinued  without  any 
trial  or  court  proceedings.  Since  it  cannot  be 
assumed  that  the  Government  could  prove  any  of 
its  contentions  in  this  petition,  and  the  suit  was 
discontinued  without  further  proceedings,  I  shall 
not  give  the  name  of  the  defendant.  But  the 
Government's  notion  of  what  constitutes  wrongful 
tactics  in  general  with  competitors  may  neverthe- 
less be  gathered  from  the  following  allegations  in 
its  petition,  in  which  I  have  substituted  other 
names  for  the  goods,  brands,  and  places  alleged. 
*'A  campaign  of  fierce  and  unfair  competition" 
the  petition  recites,  "has  been  planned  or  consented 
to  by  the  said  officers  of  the  defendant  company  and 
directed  by  its  general  manager  through  its  sales 
managers  and  other  confidential  subordinates.  A 
force  of  special  men,  sometimes  called  the  'flying 
squadron, '  was  employed,  who  were  particularly 
instructed  and  directed,  and  they  imparted  to 
sales  agents  and  salesmen  said  instructions  and 
directions,  to  suppress  and  destroy  the  business  of 
competitors  and  their  dealers  or  agents.  These 
special  men  were  also  sometimes  called  'knockout' 
men,  and  were  employed  for  the  purpose  of  inter- 
fering with  the  negotiations  and  inducing  the  can- 


Competitor's  Business  57 

cellation  by  customers  of  their  contracts  of  sale 
with  competitors.  Said  defendants  also  employed 
agents  who  were  instructed  and  directed  to  spy 
upon  the  business  of  competitors  and  fraudulently 
obtain  information  as  to  their  sales  and  shipments, 
the  addresses  of  their  customers  or  prospective 
customers,  and  to  report  such  information  to  the 
proper  officers  and  managers  of  the  defendant 
company  at  its  offices,  where  it  was  used  to  dis- 
courage prospective  purchasers  and  to  induce  the 
rescinding  by  customers  of  contracts  of  sales  with 
competitors,  and  otherwise  to  interfere  with  the 
business  of  competitors.  .  .  . 

"They  instructed  agents  of  the  defendant 
company  how  to  manipulate  competing  [machines] 
for  the  purpose  of  showing  alleged  defects  therein 
and  of  discouraging  prospective  purchasers  or 
users  of  said  devices  and  inducing  them  to  rescind 
their  contracts  of  purchase. 

"They  instructed  agents  of  the  defendant  com- 
pany to  procure  information  from  the  employees 
of  railroads,  express  companies,  hotel  companies, 
and  others  as  to  the  plans  and  purposes  of  com- 
petitors and  the  shipment  of  their  products  and 
to  report  such  information  to  the  proper  officers 
and  managers  of  defendant  company  at  its  offices 


58  Business  Competition 

where  it  was  used  in  obstructing  and  suppressing 
the  business  of  competitors.  .  .  . 

"Said  agents  have  been  directed,  advised,  and 
instructed  by  the  defendants,  who  are  directors, 
officers,  and  managers  of  the  defendant  company, 
to  pursue  in  other  ways  the  work  of  extermination 
against  all  competitors,  and  have  been  threatened 
with  dismissal  for  permitting  competition  to  exist 
in  their  district;  and  by  letters,  circulars,  com- 
munications, and  by  other  means  they  have 
carried  out  the  plans  and  purposes  of  the  defend- 
ant company  and  its  directors  and  administrative 
officers  to  suppress  competition  and  secure  for  it  a 
monopoly  of  the  [machine]  business.  .  .  . 

"The  defendants,  who  are  directors  and  ad- 
ministrative officers  of  the  defendant  company, 
have  studiously  copied  and  simulated  the  advan- 
tageous features  of  competitors'  manufactured 
products,  and  embodied  and  attached  said  features 
to  the  [Smith  machine]  and  have  advised  the 
public,  by  correspondence  and  advertisement, 
that  they  were  adopting  and  attaching  such  advan- 
tageous features  to  the  [machines]  manufactured 
and  marketed  by  the  defendant  company.  .  .  . 

''Said  directors  and  administrative  officers, 
from  time  to  time  during  the  period  aforesaid, 


Competitor  s  Business  59 

have  built  [machines]  to  resemble  in  a  general  way 
the  appearance  of  competing  [machines]  and  pur- 
porting to  produce  the  same  results  and  to  per- 
form the  same  functions.  These  were  not  built 
or  offered  for  sale  in  good  faith,  but  were  for 
the  sole  purpose  of  'knocking  out'  competition. 
Said  [machines]  were  sold  without  regard  to  their 
cost  of  manufacture,  and  at  such  a  figure  as  would 
ruin  and  destroy  competitors.  These  devices 
were  generally  known  as  'knockers*  and  were  used 
solely  for  the  purpose  of  destroying  the  business 
of  such  competitor.  ... 

*'Said  directors  and  administrative  officers 
also,  from  time  to  time,  have  maintained  at  the 
factory  at  [Metropolis,  Missouri],  a  display  room 
known  as  the  'Graveyard.'  In  this  room  were 
shown  account  registers  of  competing  companies. 
Display  cards  and  pictures  showing  the  names 
of  competing  companies  and  nature  of  product 
manufactiu-ed  by  them  were  made  and  exhibited 
in  said  room,  and  pictures  representing  large  piles 
of  competitors'  devices  being  burned  as  useless 
were  also  distributed  throughout  the  trade. 
Said  exhibits  were  pointed  to  as  a  warning  to 
competitors,  their  dealers  and  agents,  and  to 
other  persons  who  contemplated  manufacturing, 


6o  Business  Competition 

selling,  or  using  [machines]  that  competition  woiild 
eventually  be  suppressed,  and  that  the  *  Grave- 
yard' or  bonfire  would  be  the  destination  of 
competitors." 

'  WHAT  THE  COURTS  HAVE  ENJOINED 

The  fact  that  in  several  suits  where  somewhat 
similar  charges  have  been  made  the  accused  con- 
cerns have  consented  to  decrees  enjoining  the 
practices  charged  by  the  Government  against 
them  has  undoubtedly  given  these  consent  decrees 
something  of  the  authority  of  a  code  of  business 
competition. 

A  fairly  comprehensive  outline  of  the  anti- 
trust law  in  respect  of  salesmanship  was  thus 
framed  by  the  Government,  assented  to  by  de- 
fendants, and  confirmed  by  the  court,  in  the 
Adding  Machine  decree  entered  in  1913.  Just 
how  closely  the  defendant  company  should  super- 
vise the  relations  of  its  salesmen  with  competi- 
tors, and  with  the  buyers  of  competing  products, 
is  here  set  forth  in  considerable  detail. 
[  The  decree  directs  the  company  "with  all  con- 
venient speed  to  issue  and  deliver  instructions  in 
writing  to  all  its  servants  and  agents  engaged  in  the 
sale  of  its  products,  now  or  hereafter  employed  by 


Competitor's  Business  6i 

it,  to  absolutely  desist  axid  refrain  from  interfering 
with  or  directing,  or  permitting  others  under  their 
control,  or  under  the  control  of  either  of  them,  to 
unlawfully  interfere  with  the  business,  machines, 
or  appliances  of  competitors  engaged  in  the  manu- 
facture, sale,  and  shipment,  or  in  the  sale  or  ship- 
ment in  interstate  and  foreign  commerce  of 
adding-machines  or  appliances,  by  inducing  or 
trying  to  induce  such  purchasers  to  cancel  their 
contracts  with  competitors  and  to  return  to  such 
competitors  the  adding  machines  or  appliances 
so  purchased,  or  by  wrongfully  obtaining  infor- 
mation respecting  the  business,  sales,  or  ship- 
ments of  such  competitors,  or  by  fraudulent  or 
illegal  means  inducing  the  employees  of  said 
competitors  to  give  them  such  information,  or 
permitting  agents  or  employees  of  the  defendant 
company  or  of  either  of  the  individual  defendants 
to  seek  or  to  induce  others  to  seek  employment 
of  said  competitors  for  the  purpose  and  with  the 
intent  thereby  of  wrongfully  securing  information 
as  to  the  business  of  said  competitors,  or  by  any 
other  method  specified  in  said  subdivision  *e*  of 
the  IV  paragraph  of  the  petition.** 

Examination  of  the  subdivision  of  the  petition 
cited  shows  that  besides  the  particular  "methods'* 


62  Business  Competition 

above  enjoined,  the  following  must  be  added: 
(i)  instructing  salesmen  "how  to  manipulate 
competitors'  machines  for  the  purpose  of  showing 
alleged  defects  therein  and  dissatisfying  com- 
petitors* 'users*  or  'prospects*  therewith";  (2) 
issuing  "statements  reflecting  on  competitors, 
for  the  purpose  of  injuring  their  business";  (3) 
supplying  "agents  with  parts  or  illustrations 
misrepresenting  the  mechanism  being  sold  by 
competitors,  for  the  purpose  of  deceiving  'pros- 
pects* or  'users'  of  said  competitors";  (4)  instruct- 
ing "agents  to  secure  the  names  and  addresses 
of  'users,*  of  competitors,  and  lists  showing  the 
location  and  description  of  competitors*  machines 
on  trial,  for  the  purpose  of  interfering  with  the 
business  of  said  competitors,  and  to  enable  the 
defendant  company,  with  its  enormous  resources, 
to  'outmatch'  the  'trials'  of  competitors;"  and 
(5)  adopting  the  "policy  of  advertising  for  sale, 
at  reduced  prices,  competitors'  machines  which 
defendant  company  had  traded  out  or  otherwise 
secured,  for  the  purpose  of  preventing  sales  by  said 
competitors.** 

As  stated  in  the  previous  chapter,  dealing  with 
the  subject  of  letters  to  the  trade,  the  question 
which  the  courts  always  ask  is:   What  was  the 


Competitor's  Business  63 

intent?  What  was  the  purpose  which  these  acts 
were  meant  to  effect?  Just  so  does  the  Govern- 
ment regard  the  relations  of  a  concern  with  its 
competitors.  Any  sales  tactics  or  policies  which 
appear  to  have  been  undertaken  for  the  purpose 
of  discouraging  competitors,  or  injuring  the 
reputation  of  competitors'  goods,  or  preventing 
the  sale  of  such  goods  by  any  indirection,  are 
almost  sure  to  fall  under  the  Government's  ban. 
Was  the  motive  primarily  to  sell  your  own  goods, 
or  to  prevent  your  competitor  from  selling  his? 
is  the  question. 

Take,  for  example,  the  consent  decree  that 
settled  all  the  Government  anti-trust  litigation 
in  the  so-called  Cash  Register  cases.  The  charges 
here  were  not  unlike  those  in  the  two  cases  last 
above  referred  to.  But  after  the  conviction  of  the 
company's  officers  in  the  criminal  suit  had  been 
reversed  by  the  Circuit  Court  of  Appeals,  the 
Government  and  the  company,  in  191 6,  came 
together  to  frame  the  decree  that  concluded  both 
the  civil  and  criminal  prosecutions.  None  of 
the  defendants  admitted  ever  having  committed 
any  of  the  acts  which  the  decree  agreed  upon 
finally  enjoined.  Most  of  the  acts  enjoined 
were  things  which,  as  the  Government  conceded 


64  Business  Competition 

and  the  decree  expressly  provided,  were  unlawful 
only  when  committed  with  the  specific  intent 
which  the  decree  carefully  particularized  and 
specifically  denounced. 

A  GOVERNMENT  CODE  OF  SALESMANSHIP 

;  After  forbidding  such  obvious  improprieties  as 
trying  to  induce  purchasers  of  competitive  cash 
registers  to  break  contracts,  espionage  upon 
competitors'  employees  and  dealers,  and  obtaining 
secrets  from  competitors'  employees  and  dealers 
— none  of  which  the  defendants  admitted — the 
Cash  Register  decree  enjoined  the  defendants  **  (d) 
from  inducing"  competitors'  employees  and  dealers 
**to  leave  the  service  of  such  competitor  or  to 
cease  to  deal  in  such  competitor's  cash  registers. 
...(f)  from  .  .  .  offering  for  sale  any  cash 
register  .  .  .  made  to  resemble  in  appearance  a 
competing  register  ...  or  when  .  .  .  offered  for 
sale  not  in  good  faith  for  the  purpose  of  earning 
profits  therefrom  but  for  the  dominant  purpose 
of  preventing  sales  of  such  competing  cash  registers 
...  or  of  inducing  the  purchaser  ...  of  the 
competing  cash  register  ...  to  substitute  therefor 
one  of  such  similar  machines,  or  .  .  .  for  the 


Competitor's  Business  65 

purpose  of  driving  from  business  .  .  .  the  manu- 
facturer of  or  dealer  in  such  competing  cash 
registers,  .  .  .  (g)  from  selling  .  .  .  any  cash 
register  .  .  .  manufactured  by  a  competitor, 
whether  acquired  by  purchase,  exchange,  or  other- 
wise, not  for  the  purpose  of  realizing  therefrom  as 
much  as  practicable,  but  for  the  dominant  purpose 
or  intent  of  preventing  sales  by  a  competitor  or 
retail  dealer  in  the  cash  registers.  .  .  .  (h)  from 
selling  or  otherwise  disposing  of  any  second-hand 
cash  register  ...  of  the  defendant's  own  make 
for  the  purpose  not  of  realizing  therefrom  as 
much  as  practicable  but  for  the  dominant  purpose 
of  underselling  a  competitor  and  driving  him  from 
business :  provided,  that  nothing  herein  contained 
shall  prevent  any  sale  or  offer  at  a  price  made 
in  good  faith  to  meet  competition;  (i)  from  em- 
ploying any  person,  whether  known  as  a  'special 
man,'  or  'competition  man,'  ...  to  have  as  his 
principal  business  not  the  promotion  of  the  sale 
of  the  cash  registers  ...  of  the  make  of  the 
.defendants,  or  the  solicitation  of  orders  therefor, 
but  the  prevention  of  sales  of  cash  registers  .  .  . 
by  a  competitor.  .  .  .  (j)  from  following  from  one 
city  or  village  to  another  .  .  .  any  competitor 
...  or  any  dealer  in  a  competitive  cash  register 


66  Business  Competition 

...  for  the  purpose  of  interfering  with  or  hinder- 
ing such  competitor  ...  or  dealer,  while  attempt- 
ing to  sell  any  cash  register  or  other  ...  or  for  the 
purpose  of  ascertaining  the  names  of  the  persons 
upon  whom,  or  the  places  of  business  at  which, 
such  competitor  ...  or  dealer,  may  call;  (k) 
from  making,  or  circulating  .  .  .  any  statement 
...  or  insinuation  reflecting  upon  the  solvency  or 
responsibility,  financially  or  otherwise,  of  any 
competitor,  or  upon  the  efficiency  of  any  competing 
cash  register  .  .  .  when  such  statement  ...  or 
insinuation  is  either  a  misrepresentation  or  is 
made  for  the  mere  purpose,  not  of  directly  pro- 
moting the  sale  of  registers  .  .  .  manufactured 
by  defendants,  but  of  preventing  the  sale  of 
competing  cash  registers  ...  or  of  driving  such 
competitor  from  business;  (1)  from  using  or  pub- 
lishing .  .  .  any  .  .  .  circular,  or  letter,  the  purpose 
or  intent  of  which  is  to  recommend  or  suggest 
to  agents  or  employees  of  the  defendants  the 
doing  of  any  act  herein  forbidden.  .  .  .  (m) 
from  intimidating  .  .  .  any  competitor  or  any. 
person  contemplating  becoming  a  competitor  in 
the  manufacture  or  sale  of  cash  registers  .  .  . 
by  maintaining  ...  a  display  of  models  of 
machines  of  the  defendants'  make,  together  with 


Competitor's  Business  67 

various  rival  machines  which  they  were  built 
to  resemble  or  to  displace,  or  by  maintaining  .  .  . 
a  display  of  quantities  of  second-hand  registers 
...  of  a  competitor,  or  by  displaying  placards 
or  statements  purporting  to  show  the  amounts 
lost  by  various  competitors  in  an  effort  to  compete 
with  the  defendant  corporation  .  .  .  and  from 
intimidating  ...  by  any  such  means,  investors 
or  persons  contemplating  becoming  investors  in 
the  stocks  or  other  securities  of  competing  com- 
panies. .  .  .  (n)  from  maintaining  as  an  ostensible 
competitor  any  .  .  .  organization  owned,  directed, 
or  controlled,  by  stock  ownership  or  otherwise, 
by  said  defendants  or  any  of  them  or  affiliated 
with  them,  or  any  of  them  without  disclosing 
the  connection  with  the  said  defendants;  (o) 
from  intimidating  .  .  .  prospective  purchasers  of 
competing  cash  registers  .  .  .  with  suit  or 
liability  for  patent  infringement  unless  and 
until  such  claim  of  infringement  has  been 
sustained  by  a  court  of  competent  jurisdic- 
tion. But  nothing  herein  contained  shall 
prevent  defendant  corporation  or  its  proper 
representative  from  serving  in  good  faith  upon 
any  such  purchaser  a  formal  notice  of  its  claim 
of  infringement." 


68  Business  Competition 

DANGEROUS     RELATIONS     WITH     COMPETITORS* 
CUSTOMERS 

One  of  the  most  drastic  injunctions  affecting 
relations  with  competitors'  customers  is  contained 
in  the  consent  decree  obtained  by  the  Government, 
in  19 12,  against  certain  concerns  engaged  in  dis- 
tributing news  and  stereotyped  plates.  By 
this  decree  the  defendants  were  enjoined  "from 
sending  out  travelHng  men  for  the  purpose  or  with 
instructions  to  influence  the  customers  of  such  com- 
petitors of  either  of  these  defendaittSy  so  as  to  secure 
the  trade  of  such  customers,  without  regard  to 
the  price"  (italics  added). 

Interference  with  existing  contracts  between  a 
competitor  and  its  customers  is,  of  course,  always 
a  wrong  for  which  the  competitor  may  sue  the 
interfering  party;  and  in  several  suits  brought 
imder  the  anti-trust  act  the  courts  have  specifically 
enjoined  such  interference.  The  decree  last  quoted, 
however,  goes  to  an  extraordinary  length  upon 
this  point  and  particularly  enjoins  some  of  the 
defendants  "from  in  any  manner  promising  or 
intimating  to  any  publisher  or  other  person  who 
is  a  customer  of  the  American  Press  Association, 
or  any  other  competitor,  that  they  will  protect 


Competitor's  Business  69 

such  customer  against  expenses  and  costs  in  any 
suit  that  may  arise  by  reason  of  the  repudiation  of 
any  contract  between  such  competitor  and  such 
customer*' ;  "from  in  any  manner  retaining  or  per- 
mitting the  retention  by  their  agents  or  employees 
of  plate  metal  or  other  property  belonging  to  the 
American  Press  Association,  or  other  competitor 
of  said  defendants  " ;  '  *from  in  any  manner  offering 
bonuses  of  paper  or  plate  service,  free  or  at  a 
nominal  price,  with  the  purpose  and  intent  of 
inducing  or  enabling  customers  of  the  Western 
Newspaper  Union  or  any  other  competitor  to 
temporarily  change  to  home  print  papers  and 
thus  to  assist  them  in  breaking  contracts  with 
the  said  Western  Newspaper  Union  with  lessened 
chances  of  liability  for  breach  of  contract;  and 
furthermore  from  offering  in  connection  with  such 
bonus  to  sell  their  service  at  less  than  the  usual 
price  to  such  customer  of  such  competitor,  and 
from  offering  as  a  part  of  such  plan  the  continued 
use  of  free  plate  for  the  home  print  side  of  the 
papers  of  such  customer." 

Salesmen,  generally,  have  come  to  realize  that 
disparagement  of  their  competitors  is  not  the  most 
effective  sales  argument  to  use  with  customers. 
In  some  lines,  however,  where  the  customer  buys 


70  Business  Competition 

not  merely  merchandise  but  also  some  sort  of 
continued  service,  the  ability  of  the  competitor  to 
continue  to  give  such  service  is  almost  an  essential 
feature  in  the  sales  argument. 

This  consent  decree  above  quoted  goes  to  great 
lengths  upon  this  point,  and  particularly  enjoins 
some  of  the  defendants  "from  in  any  manner, 
either  directly  or  indirectly,  instructing,  causing, 
or  permitting  their  agents  or  employees  or  travel- 
ling salesmen  throughout  the  country  to  circulate 
reports  or  to  intimate  or  convey  the  impression 
that  these  defendants  will  put  the  American 
Press  Association  out  of  business,  or  that  the 
American  Press  Association  will  not  be  able  to 
continue  in  business  against  the  competition  of 
these  defendants,  or  that  the  American  Press 
Association  intends  to  or  is  about  to  combine  with 
the  defendants  or  the  defendants  with  them,  or 
to  intimate  or  convey  the  impression  that  unless 
publishers  approached  by  such  salesmen  deal 
with  these  defendants,  they  will  be  discriminated 
against  as  soon  as  the  American  Press  Association 
shall  be  put  out  of  business  by  the  competition  to 
which  it  is  being  subjected  *' ;  "from  in  any  manner 
unfairly  criticizing  and  abusing  the  method  of  the 
said  American  Press  Association  with  reference 


Competitor's  Business  71 

to  advertising,  or  from  doing  any  of  said  things 
through  its  weekly  house-organs,  known  as  the 
'Publishers*  Auxiliary'  and  the  'Western  Pub- 
lisher,' and  particularly  from  misrepresenting 
through  said  means  the  business  and  business 
methods  of  the  American  Press  Association,  with 
the  intent  and  for  the  purpose  of  taking  away  the 
customers  of  the  said  American  Press  Association, 
or  otherwise  injuring  its  business";  "from  in  any 
manner  unfairly  criticizing  and  abusing  the 
method  of  the  said  Western  Newspaper  Union 
with  reference  to  advertising  through  these  de- 
fendants' circulars  relating  to  its  bureau  of  foreign 
advertising,  or  from  doing  any  of  said  things 
through  its  weekly  house-organ,  known  as  the 
'American  Press,'  and  particularly  from  misre- 
presenting through  said  means  the  business  and 
business  methods  of  the  Western  Newspaper  Union, 
with  the  intent  and  for  the  purpose  of  taking  away 
the  customers  of  the  said  Western  Newspaper 
Union  or  otherwise  injuring  its  business." 

THREATS  OF  NEW  COMPETITION  ENJOINED 

The  Government  looks  with  extreme  disfavour 
upon  threats  or  suggestions  that  new  competition 
may  be  started  under  given  conditions.     Thus, 


72  Business  Competition 

in  this  same  decree,  all  of  the  defendants  were 
enjoined  "from  threatening  any  customer  of  a 
competitor  with  starting  a  competing  plant  unless 
he  patronizes  one  or  the  other  of  these  defendants  " ; 
and  "from  threatening  the  competitors  of  either 
of  these  defendants  that  they  must  either  cease 
competing  with  defendants  or  sell  out  to  one  or  the 
other  of  the  defendants  herein,  and  from  threaten- 
ing that  unless  they  do  their  industries  will  be 
destroyed  by  the  establishment  of  nearby  plants 
to  actively  compete  with  them,  or  by  any  other 
method  of  unfair  competition." 

Alleged  threats  to  start  new  competition  were 
also  cited  with  condemnation  by  the  Government, 
in  1913,  in  a  suit  against  a  glucose  manufacturer. 
This  suit  is  now  pending  on  appeal,  so  that  it 
cannot  now  be  assumed  that  any  of  the  Govern- 
ment's allegations  have  been  finally  estabhshed. 
But  among  the  acts  disapprovingly  cited  by  the 
Government  against  the  company — ^which  the 
District  Court  has  ordered  to  be  dissolved — are 
alleged  statements  of  its  officers  to  various  candy 
manufacturers  throughout  the  country  that  *'it 
expected  them  to  purchase  a  certain  large  per- 
centage of  the  glucose  needed  by  them"  from  the 
company,  and  that  "if  said  company  did  not  get  a 


Competitor's  Business  73 

sufficient  percentage  of  such  glucose  business,  it 
would  go  into  the  candy  manufacture  itself  in 
competition  with  such  manufacturers." 

Anything  that  looks  like  an  attempt  to  shut 
out  competitors'  goods  by  persuading  any  class  of 
professional  advisers  to  refrain  from  specifying 
them  is  likely  to  be  regarded  very  seriously  by  the 
Government.  Thus  in  the  Government's  petition, 
in  1 913,  in  a  case  against  a  stone-cutting  concern, 
the  company  is  accused  of  "inducing  architects 
to  specify  for  use  in  construction  stone  of  such 
designation  as  can  be  supplied  only  by  the  de- 
fendant .  .  .  when  other  competitors  are  pro- 
ducing stone  of  the  same  or  like  character,  and 
inducing  architects  to  bring  their  influence  to  bear 
in  its  behalf  upon  contractors  or  those  intending 
to  have  construction  work  done,  while  professing 
to  act  disinterestedly  and  for  the  sole  benefit 
of  such  party." 

The  case  against  the  stone  company  has  not 
been  brought  to  trial,  so  here  again  we  are  quoting 
the  Government's  partisan  view  of  the  matter. 
It  clearly  indicates,  however,  that  the  Depart- 
ment of  Justice  is  prepared  to  investigate  every 
possible  factor  of  distribution,  and  that  even  the 
professional  advice  of  an  architect  to  his  clien^ 


74  Business  Competition 

may  sometimes  be  relied  upon  as  evidence  of  an 
intent  to  restrain  competition. 

Enough  has  been  cited  to  show  the  extreme 
danger  of  too  aggressive  methods  of  dealing  with 
competitors.  Parenthetically  it  may  be  remarked 
that  there  is  almost  equal  danger  in  too  harmonious 
relations  with  one's  competitors — but  that  must 
be  left  for  later  discussion.  The  intent  is  the 
point  at  issue,  and  as  I  have  already  pointed  out, 
the  Government  can  ransack  letter  files  and 
ofBce  records  and  scrap-books  for  the  purpose 
of  finding  out  what  the  intent  really  is.  There- 
fore, the  business  man  must  avoid  even  the  appear- 
ance of  unlawful  intent.  Competitors'  prices  may 
be  met,  new  brands  may  be  produced  to  parallel 
competitors'  brands — but  the  emphasis  must  be 
placed  on  selling  one's  own  goods,  and  not  on  pre- 
venting the  sale  by  others  of  their  goods.  Letters, 
bulletins,  advertisements,  even  word-of-mouth  in- 
structions to  the  sales  force,  must  be  framed  with 
that  point  in  mind.  If  the  Government's  attitude  on 
the  question  of  one's  relations  with  his  competitors 
could  be  summed  up  in  a  single  sentence,  it  might 
run  something  like  this:  "Safety  lies  in  minding 
your  own  business ;  and  the  man  who  begins  to  mind 
his  competitors'  business  is  inviting  trouble." 


CHAPTER  IV 

PRICE-DISCRIMINATIONS   AND  PRICE-MANIPULATION 

Honest  manufacturers  who  have  read  with 
some  trepidation  of  the  activities  of  the  Depart- 
ment of  Justice  and  the  Federal  Trade  Commis- 
sion are  asking :  "How  am  I  going  to  be  sure  that 
I  am  not  unwittingly  violating  the  law?  I  have 
several  hundred  salesmen  scattered  over  the 
country  who  cannot  be  at  all  times  under  my 
personal  supervision.  Competition  is  very  keen 
in  my  field.  I  have  read  the  Sherman  and  Clayton 
Acts  with  great  care,  and  also  the  Federal  Trade 
Commission  Act,  but  I  seem  to  be  more  perplexed 
than  ever.  I  don't  want  to  violate  the  law.  I 
want  to  know  how  far  I  can  go,  and  how  far  my 
competitors  can  go.     How  can  I  find  out?" 

Well,  it  happens  that  in  more  than  one  instance 

the  courts  have  tried,  with  some  diffidence,  to 

answer    that    very    question.     For    example,    in 

19 1 5,   in  the  Watch-case  suit   the    court    asks: 

75 


76  Business  Competition 

*'What  are  the  ordinary  marks  of  such  a  course 
of  conduct  as  may  properly  be  condemned  as  a 
restraint  of  trade?"  Then  the  court  proceeds  to 
give  its  own  answer,  in  the  following  words: 
*' Without  attempting  to  enumerate  them  exhaust- 
ively, a  few  general  observations  may  be  made. 
Trade  is  restrained  by  putting  hindrances  in  the 
way  of  the  persons  that  conduct  it.  Whatever 
makes  it  more  difficult  for  such  persons  to  carry  on 
their  business  restrains  them,  and  restrains  their 
trade ;  but  (to  speak  generally)  as  every  successful 
effort  of  a  merchant  to  increase  his  own  trade  makes 
it  harder  for  his  rivals  to  succeed  and  therefore 
restrains  their  trade;  and  as  Congress  certainly 
did  not  intend  to  condemn  the  proper  exercise  of 
business  zeal  and  energy,  we  must  recur  to  the 
rule  of  reason  and  ask — not  merely  what  is  re- 
straint of  trade,  but  what  is  unreasonable  restraint 
of  trade? 

!'0n  this  subject  we  are  certainly  able  to  say 
some  things  with  confidence.  Competitors  must 
not  be  oppressed  or  coerced;  fraudulent  or  unfair 
or  oppressive  rivalry  must  not  be  pursued.  And 
if  these  words  are  criticized  as  too  general,  we  may 
reply  that  such  generality  is  apparently  una- 
voidable as  some  recent  legislation  of  Congress 


Price-Discriminations  77 

testifies,  and  moreover  we  may  safely  deny  that 
the  words  are  too  vague  for  satisfactory  use;  for 
it  must  be  remembered,  that  the  common  agree- 
ment of  moral  opinion  in  the  community  furnishes 
an  adequate  guide  to  their  practical  meaning  and 
their  practical  application"  (italics  added). 

On  the  other  hand,  in  191 2,  in  the  early  stages  of 
the  Cash  Register  case,  the  defendants  demurred 
on  the  ground  that  the  indefiniteness  of  the  law 
left  no  rule  which  business  men  might  follow.  The 
court's  answer  was  a  rebuke.  "It  is  hard,''  said 
the  court,  "to  sympathize  with  the  often-repeated 
expression  that  a  merchant  is  not  advised  by  the 
anti-trust  act  of  the  character  of  a  contemplated 
act.  .  .  .  The  Golden  Rule  may  not  as  yet  be 
the  standard  by  which  the  law  requires  contracts 
in  restraint  of  trade  to  be  measured,  but  the  an- 
cient adage,  *  Live  and  let  live, '  has  its  application 
to  trade  and  is  a  safe  rule  to  go  by."  Yet  this  self- 
same judge  was  later  unanimously  reversed  by  the 
Circuit  Court  of  Appeals  for  incorrectly  interpret- 
ing this  same  anti-trust  act  upon  the  trial  of  this 
very  case! 

It  is  not  likely  that  these  judicial  pronounce- 
ments will  prove  very  consoling,  but  they,  with 
numerous  others  of  even  less  luminosity,  are  the 


78  Business  Competition 

best  general  rtdes  available  from  authoritative 
sources. 

There  is  no  wonder,  indeed,  that  business  men, 
when  confronted  with  the  wide  scope  of  the  laws 
against  restraint  of  trade  and  the  apparently  end- 
less variety  of  acts  which  the  Government  objects 
to,  are  inclined  to  throw  up  their  hands  and  ex- 
claim: "In  heaven's  name,  what  can  we  do?" 
We  shall  find  as  we  go  on  with  our  discussion, 
however,  that  the  affirmative  side  of  the  question 
has  often  been  regarded  by  the  courts,  and  that, 
in  certain  instances,  definite  rulings  have  been 
laid  down  as  to  conduct  which  is  lawful.  And 
in  the  end  we  may  be  able  to  draw  some  general 
conclusions  which  will  be  positively  helpful. 

AN  EXPOSITION  OF  LAWFUL  PRACTICE 

One  of  those  affirmative  pronouncements  oc- 
curred, in  1914,  in  the  charge  to  the  jury  by  the 
judge  in  a  case  against  a  powder  company.  This 
was  an  action  brought  under  Section  7  of  the 
Sherman  Act,  to  recover  $3,859,87346  in  damages. 
It  was  alleged  that  the  defendant,  under  an  old 
combination  which  had  been  dissolved,  had 
established  a  scale  of  discriminatory  prices  in 
territory  served  by  the  plaintiff  for  the  purpose  of 


Price-Discriminations  79 

unlawfully  monopolizing  the  trade  in  powder. 
The  latter  company  sued  for  three-fold  damages, 
as  the  law  provides.  The  case  was  tried  before  a 
jury,  and  lasted  from  September,  19 13,  until  Febru- 
ary 25,  1 9 14.  On  the  latter  date  the  jury  returned 
a  verdict  for  the  defendants.  The  judge's  charge  to 
the  jury  is  a  pretty  comprehensive  exposition  of  a 
manufacturer's  lawful  rights  in  the  matter  of  meet- 
ing price  competition,  and  is  worthy  of  careful  study. 
**As  to  the  alleged  cut  prices  to  remove  trade 
from  regular  competition,"  says  the  judge,  "the 
defendant  having  become  possessed  of  the  plants  of 
other  companies,  was  by  reason  of  such  purchases 
in  a  position  to  supply  a  larger  demand  of  the 
powder  trade  than  before.  It  had  a  right  to  take 
any  usual  method  known  in  business  conducted 
normally  to  preserve  all  the  trade  which  these 
different  companies  brought  to  it.  It  had  a  right 
to  run  its  mills  at  any  capacity  it  saw  fit,  even 
though  the  running  of  such  mills  at  their  fullest 
capacity  would  require  it  -gbo  find  additional 
markets.  It  had  a  right  to  do  all  these  things  even 
though  it  knew  that  in  so  doing  keener  competition 
for  the  trade  would  result.  In  competing  for  such 
trade,  however,  it  was  confined  to  the  use  of  lawful 
methods  of  business.     If  by  reason  of  its  size  or 


8o  Business  Competition 

its  superior  facilities,  it  could  manufacture  its 
product  cheaper  than  a  competitor,  it  had  the 
right  to  avail  itself  of  such  advantage,  either  by- 
taking  the  extra  profits  that  such  advantage  gave 
or  to  underbid  its  competitors  with  their  own 
trade.  It  would  have  no  right,  however,  to  keep 
such  of  its  trade  as  had  been  acquired  by  illegal 
means  from  being  openly  and  fairly  competed 
for.  It  would  have  no  right  to  use  its  superior 
advantages,  whether  derived  through  a  number  of 
plants  or  old  contracts,  in  an  attempt  to  monopolize 
the  trade;  and  it  would  not  have  the  right  under 
the  guise  of  ordinary  methods  in  business  to  de- 
signedly underbid  a  competitor  with  the  purpose 
of  so  crippling  it  as  to  force  it  out  of  business,  or  to 
make  it  a  negligible  factor  in  opposing  a  purpose  to 
monopolize.  The  crucial  question  of  the  defend- 
ant's conduct  in  this  central  district  in  which  the 
plaintiff  was  located  is,  therefore:  What  was  the 
defendant's  purpose  in  using  the  methods  to  secure 
the  trade  in  that  district  ?  Was  it  merely  to  protect 
its  interests  as  a  producer  and  vendor  of  powder, 
or  was  it  to  inflict  such  injury  upon  the  Buckeye 
or  other  competitors  in  that  district  as  to  make  it 
impossible  for  such  competitors  to  cope  with  it  there, 
because  of  their  lesser  financial  strength  and  more 


Price-Discriminations  8i 

limited  area  in  which  they  could  do  a  profitable 
business;  so  that  in  the  end,  be  it  soon  or  long  deferred, 
they  would  have  to  yield  their  independence  or  with- 
draw their  opposition  as  competitors,  and  permit 
the  defendant's  acquiring  such  a  dominancy  i7i  the 
trade  as  to  amount  to  monopoly  ?  "  (italics  added). 

After  outlining  trade  conditions  in  the  territory 
under  consideration,  the  judge  continues : 

"That  competition  carried  on  by  such  a  number 
[of  concerns],  striving  with  more  or  less  zeal  to 
obtain  trade  in  the  central  States,  would,  in  the 
absence  of  artificial  restrictions,  be  more  or  less 
keen  and  troublesome  must  be  assumed,  and  in 
dealing  with  the  question  whether  the  defendant, 
in  inaugurating  or  using  the  methods  employed 
by  it  to  secure  trade  in  that  territory,  was  acting 
on  the  defensive  and  simply  endeavouring  to 
protect  its  legitimate  interests,  such  competition 
must  be  considered;  but  in  so  doing,  it  must  not 
be  forgotten  that  during  this  time,  or  the  greater 
part  of  it,  it  had  the  greater  part  of  the  trade 
which  it  obtained  through  the  contracts  mentioned 
in  the  Rice  list  and  which,  you  will  remember, 
came  into  existence  while  the  trade  association 
lasted,  and  which  were  then  unlawful,  because 
undue  restraints  of  trade;  so  that,  if  in  the  competi- 


82  Business  Competition 

live  struggle,  whether  it  was  of  its  own  initiative  or 
forced  upon  it  by  its  competitors,  its  endeavour  was 
to  add  to  the  trade  thus  secured  to  itself,  that  by  this 
larger  amount  of  trade  thus  removed  from  open  com- 
petition its  competitors  in  the  territory  containing 
such  restricted  market  would  be  unable  to  get  sufficient 
trade  to  carry  on  a  profitable  business,  thus  minimiz- 
ing or  removing  them  as  competitors  in  that  territory, 
such  endeavours  constitute  attempts  to  monopolize. 

*'In  addition  to  this,  the  making  of  this  ninety- 
five-cent  rate,  general  or  special  as  applied  to 
the  central  States,  is  to  be  considered  in  the  light 
of  the  fact  that  the  defendant  was  a  large  producer, 
having  plants  located  in  different  parts  of  the 
country,  the  normal  markets  of  which  being  within 
such  area  of  its  different  plants  as  could  readily  be 
reached  by  them  respectively.  Such  a  trader  has 
an  advantage  over  a  competitor  who  has  but  one  lo- 
cation, as  the  former  can  recoup  its  losses,  if  any,  in 
any  particular  district,  or  can  add  to  a  low  amount 
of  profit  in  such  a  district  from  the  profits,  if  any 
result,  from  its  operation  in  other  districts. 

GETTING  BACK  TO  THE  INTENT 

"Intent,  therefore,  in  the  making  of  such  ninety- 
five-cent  rate,  as  already  noted  in  the  instance  of 


Price-Discriminations  83 

other  steps,  is  the  crucial  matter.  Intent,  of 
course,  is  an  act  of  the  mind,  and  where  the  person 
having  the  mind  in  which  an  intent  is  formed 
fails  to  disclose  it  by  words,  we  may  turn  to  his 
acts,  and  if  they  furnish  the  evidence  of  intent, 
we  may  accept  such  conduct  as  evidence  of  the 
intent.  If  the  remarks  attributed  to  Mr.  Haskell 
and  Mr.  Bumstead  by  Mr.  Brewster,  which  are 
that  Mr.  Haskell  said  that  the  competitors  could 
not  make  powder  at  a  profit  at  ninety-five  cents 
and  that  Mr.  Bumstead  said  that  such  price  was 
low  enough  to  get  the  competitive  black  powder 
business,  are  true,  they  would  be  rather  significant 
as  to  the  purpose  of  making  that  ninety-five-cent 
rate,  for  you  will  remember  that  such  remarks 
were  said  to  have  been  made  by  both  these  men 
after  that  rate  had  been  determined  upon  and 
which,  as  you  will  recollect,  is  said  to  have  followed 
the  making  of  the  Brewster  report,  and  which 
report  contained  the  names  of  alleged  customers 
of  the  plaintiflE.  .  .  . 

"You  in  your  consideration  of  the  facts,  of 
course,  will  endeavour  to  ascertain  whether  they 
stand  isolated  or  are  steps  in  a  general  plan.  If  they 
are  the  former,  that  is,  separate  and  disconnected, 
I  think  you  would  have  great  difficulty  in  finding 


84  Business  Competition 

that  they  show  such  an  attempt  at  monopoliza- 
tion as  is  necessary  to  maintain  this  suit.  //, 
however,  you  find  that  they  hear  a  relation  to  each 
other,  and  the  facts  satisfy  you,  in  the  manner  that 
I  have  charged  you,  that  they  are  part  and  parcel 
of  a  general  plan,  or  steps  in  a  deliberate  purpose, 
the  question  then  is:  What  is  that  plan  or  purpose  ? 
Such  plan  might  be  either  legitimate  or  illegiti- 
mate. Was  such  a  plan  or  purpose  to  merely  pro- 
tect the  legitimate  interests  of  the  defendant  in  the 
trade,  that  is,  was  it  for  the  purpose  of  protecting 
such  part  or  all  of  the  trade  which  it  had  acgidred 
theretofore  by  legitimate  means,  or  which,  by  reason 
of  its  capacity  and  ability  to  supply,  it  was  reason- 
ably entitled  to  in  free  competition;  or  was  it  to  harass 
and  oppress  its  competitors  so  that  in  the  end,  be 
it  near  or  far  removed,  they  would  cease  to  he  in- 
dependent competitors  and  leave  it  master  of  the 
marhet?  If  you  find  that  such  protection,  and 
not  oppression,  was  the  purpose  and  the  use  made 
of  such  steps  or  parts  of  a  plan,  then  the  defendant 
is  not  liable  in  damages  simply  because  as  an 
incident  to  the  carrying  out  of  that  plan,  a  com- 
petitor was  injured  in  his  business  or  property.  .  .  . 
"Competition  as  it  exists  under  the  laws  at 
this  date  has  within  it  the  element  of  fight.     It 


Price-Discriminations  85 

permits  fighting  so  long  as  it  is  fair  and  it  permits 
the  fair  fighter  to  go  away  with  the  spoils,  even 
though  someone  in  that  fight  has  been  injured, 
and  perhaps  irretrievably  injured  in  consequence; 
so  that  it  is  not  the  mere  fact  that  a  competitor 
suffers  injury  through  severe  competition  that 
makes  the  other  competitor,  who  may  have  come 
out  of  the  fray  successfully,  liable  to  compensate 
for  the  losses  sustained  by  the  injured  party.  It 
is  only  when  the  injury  is  sustained  by  reason  of 
the  things  forbidden  by  the  anti-trust  act  that 
compensation  can  be  recovered,  and  the  things 
that  are  forbidden,  so  far  as  pertinent  to  this  case, 
are  those  that  constitute  an  attempt  to  monopolize, 
that  is  to  suppress  competition.  If,  however, 
the  plan  and  purpose  and  the  use  made  thereof  are 
to  cripple  the  competitor  and  such  steps  or  parts 
of  such  plan  as  carried  out  directly  and  naturally 
tend  to  the  suppression  of  competition,  no  matter 
how  slow  the  development  of  such  purpose  or  gradual 
its  consummation,  and  a  competitor  is  injured  in 
his  business  or  property  by  reason  of  the  carrying 
out  of  such  plan,  then  tJie  author  and  user  of  such 
plan  is  liable  in  damages  for  the  loss  thus  sustained'* 
(italics  added). 
I  have  quoted  the  judge  at  considerable  length, 


86  Business  Competition 

because  he  gives  the  best  exposition  I  have  been 
able  to  find  of  the  law  as  it  affects  the  making  of 
special  prices  to  meet  competition.  This  branch 
of  the  subject  is  so  important,  and  questions 
of  price-discriminations  have  come  up  so  often 
in  anti-trust  cases,  that  a  special  section  of  the 
Clayton  Act  was  devoted  to  it.  ^ 

*' FIGHTING  brands'* 

It  should  be  borne  in  mind,  however,  that  the 
view  of  the  matter  above  quoted  is  the  view  of  the 
courts,  while,  as  I  pointed  out  in  the  preceding 
chapter,  it  is  the  Government's  view  which  is  likely 

^  Sec.  2.  That  it  shall  be  unlawful  for  any  person  engaged  in 
commerce,  in  the  course  of  such  commerce,  either  directly  or 
indirectly  to  discriminate  in  price  between  different  purchasers 
of  commodities,  which  commodities  are  sold  for  use,  consumption, 
or  resale  within  the  United  States  or  any  Territory  thereof  or 
the  District  of  Columbia  or  any  insular  possession  or  other  place 
under  the  jurisdiction  of  the  United  States,  where  the  effect  of 
such  discrimination  may  be  to  substantially  lessen  competition 
or  tend  to  create  a  monopoly  in  any  line  of  commerce:  Provided, 
That  nothing  herein  contained  shall  prevent  discrimination  in 
price  between  purchasers  of  commodities  on  account  of  differences 
in  the  grade,  quality,  or  quantity  of  the  commodity  sold,  or  that 
makes  only  due  allowance  for  difference  in  the  cost  of  selling 
or  transportation,  or  discrimination  in  price  in  the  same  or  differ- 
ent communities  made  in  good  faith  to  meet  competition:  And 
provided  further.  That  nothing  herein  contained  shall  prevent 
persons  engaged  in  selling  goods,  wares,  or  merchandise  in  com- 
merce from  selecting  their  own  customers  in  bona  fide  trans- 
actions and  not  in  restraint  of  trade. 


Price-Discriminations  87 

to  be  important  to  the  average  business  man, 
unless  he  is  prepared  to  stand  the  expense  of  liti- 
gation. However  much  the  statutes  and  the 
courts  may  stirround  the  subject  of  price-discrimi- 
nations with  qualifications,  conditions,  and  pro- 
visos, the  Government  is  seldom  likely  to  give  a 
defendant  the  benefit  of  the  doubt.  The  establish- 
ment of  prices  and  terms  which  are  not  extended 
to  all  customers  alike  is  looked  upon  with  extreme 
disfavoiu:,  and  is  likely  to  be  produced  as  evidence 
of  unlawful  intent. 

Any  subterfuge  of  form  is  quickly  pierced  by  the 
sharp  eyes  of  the  Department  of  Justice.  The  At- 
torney-GeneraFs  men  not  only  are  adepts  at  strip- 
ping off  disguises,  but  are  exasperatingly  suspicious 
and  cynical  in  their  view  of  some  very  common 
methods  of  competition.  Take,  for  example, 
the  Government's  description  of  certain  acts  of 
some  manufacturers  of  sewing  thread  who  were 
prosecuted  in  191 3.  The  following  paragraphs 
are  quoted  from  the  Government's  petition : 

"When  an  independent  succeeds  in  building  up 
an  appreciable  business  in  the  domestic  thread  and 
gets  his  brand  fairly  well  established,  the  agents 
of  said  consolidated  companies  revive  some  one 
of  their  brands  which  has  been  out  of  use,  and  sell 


88  Business  Competition 

same  at  a  price  below  cost  of  production  solely  to 
customers  of  the  independents,  frequently  exacting 
from  such  customers  an  agreement  that  they  will 
cease  handling  the  brands  of  such  independents. 
Usually  regular  salesmen  do  not  handle  these 
brands,  which  are  known  as  'fighting  brands,'  and 
special  sales  forces  are  put  on  the  road  for  this 
purpose  who  are  commonly  known  as  'flying 
squadrons.*  If  an  independent  jobber  refuses  to 
deal  with  an  agent  of  the  combination,  his  retail 
trade  is  canvassed,  and  the  orders  thus  obtained 
are  offered  to  the  independent  jobber  to  induce 
him  to  desert  his  independent  mill,  and  if  he  re- 
mains loyal  the  orders  are  hawked  among  compet- 
ing jobbers  until  one  is  found  who  will  accept  and 
fill  them;  and  sometimes  when  there  is  no  con- 
venient rival  jobber  to  whom  they  may  be  given 
the  retail  orders  are  filled  direct.  .  .  . 

"With  reference  to  the  sale  of  manufacturers* 
thread,  the  course  pursued  by  defendants  is  to 
undersell  the  independents,  frequently  far  below 
cost  of  production,  in  markets  where  there  is 
competition,  and  to  maintain  full  list  prices,  realiz- 
ing thereon  a  good  profit,  in  markets  where  there 
is  no  keen  competition.  Furthermore,  special 
trust  salesmen  are  sent  out  for  the  sole  purpose  of 


Price-Discriminations  89 

working  the  independent  trade.  These  salesmen 
approach  the  customers  of  independents  and  offer 
them  secret  rebates,  payable  at  the  end  of  the 
season,  in  order  to  induce  them  to  cease  buy- 
ing independent  goods.  These  rebates  vary  in 
amount  from  2%  per  cent,  to  15  per  cent,  of  the 
net  list  prices.  There  is  no  fixed  method  of  making 
this  rebate  payment,  and  it  may  be  made  either  by 
check  or  cash  direct  from  the  New  York  office 
or  handled  by  the  local  district  managers." 

That  is  the  Government's  interpretation  of  a 
series  of  acts,  most  of  which  would  probably  have 
been  set  forth  in  quite  a  different  light  by  any  sym- 
pathetic and  experienced  salesman.  The  defend- 
ant companies  did  not  contest  the  Government's 
view  of  the  case,  but  consented  to  a  decree  which 
was  entered  in  19 14.  By  the  terms  of  that  decree 
the  defendants  were  perpetually  enjoined: 

"From  using  in  the  United  States  what  are 
known  in  the  trade  and  referred  to  in  the  petition 
herein  as  *  fighting  brands,*  hereby  defined  to  be 
brands  which  are  devised  or  revived  and  used 
for  the  purpose  of  being  offered  principally  to 
customers  of  competitors  at  cut  prices,  that  is  to 
say,  at  prices  lower,  or  on  terms  more  favourable, 
than  the  price  or  terms,  asked  by  the  seller  for 


90  Business  Competition 

substantially   the   same   thread   under   different 
brands  or  trade  names.  .  .  . 

"From  selling  or  offering  to  sell  in  the  United 
States  sewing  thread  of  any  kind  below  the  cost 
of  production,  or  at  prices  which,  after  allowing 
for  cost  of  transportation  and  differences  in  prices 
or  terms  on  account  of  differences  in  grade, 
quality,  or  quantity  sold,  are  lower  than  the 
prices  charged  in  other  parts  of  the  United  States, 
with  the  intent  of  thereby  obtaining  a  monopoly, 
or  destroying  or  injuring  the  trade  or  business  of 
another  in  sewing  thread,  or  of  preventing  another 
from  engaging  in  such  trade  or  business;  but  no- 
thing in  this  paragraph  contained  shall  prevent  the 
defendant  corporations  from  offering  for  sale  or 
selling  sewing  thread  in  any  part  of  the  United 
States  at  prices  or  on  terms  as  low  as  any  of 
their  bona  fide  competitors  are  then  and  there 
offering,  nor  from  offering  or  making  different 
prices,  terms,  or  conditions  to  different  classes  of 
customers." 

MANIPULATION  OF   BRANDS  AND  PRICES 

It  may  be  stated  as  practically  a  foregone  con- 
clusion that  it  is  not  possible  to  cover  up  price- 
discriminations  by  means  of  any  manipulation 


Price-Discriminations  91 

of  brands.  Under  ordinary  circumstances,  the 
Government  does  not  object  to  the  creation  of 
new  brands  for  the  avowed  purpose  of  meeting 
competition,  provided  that  the  new  brands  are 
accessible  to  the  whole  trade  on  equal  terms. 
Paralleling  competitors*  brands  is  considered 
legitimate,  so  long  as  the  distribution  of  the  par- 
allel brand  is  not  confined  wholly  to  customers  of 
competitors,  or  to  competitors'  trade  territory. 

It  is  not  at  all  uncommon  for  manufacturers 
in  many  different  lines  to  put  out  brands  of  goods 
under  their  own  trade-mark,  and  at  the  same 
time  to  sell  the  goods  to  others  who  put  them  out 
under  private  brands.  In  some  trades  it  is  cus- 
tomary thus  to  sell  the  finished  product,  and  in 
other  lines  only  the  materials  or  ingredients  are 
sold.  In  either  case,  the  buyer  of  the  private 
brand  goods  becomes  a  competitor  of  the  manu- 
facturer, so  far  as  those  particular  goods  are 
concerned,  and  unless  great  care  is  exercised  such 
a  situation  may  prove  the  source  of  trouble.  A 
case  of  that  sort  is  made  the  basis  for  serious 
allegations  in  the  Government's  suit  against  a 
glucose  manufacturer.  This  case  is  still  pending, 
upon  appeal  from  a  decision  in  favour  of  the 
Government.     Hence  the  facts  alleged  by   the 


92  Business  Competition 

Government  may  in  time  be  disproved  entirely, 
or  a  very  different  interpretation  may  be  placed 
upon  them.  The  Government's  view^  of  the 
matter  is  extremely  important,  however,  and  is 
contained  in  the  following  paragraphs  from  the 
petition : 

"Petitioner  alleges  that  there  have  been  and 
are  throughout  the  United  States  corporations 
and  other  concerns  and  persons  engaged  in  the 
syrup-mixing  business.  Many  of  such  concerns 
or  persons  do  not  manufacture  glucose,  but  buy 
such  glucose  and  molasses  or  kindred  cane  products 
on  the  market,  mix  the  same  in  their  own  factories, 
pack  such  mixed  syrups  under  their  own  private 
brands,  and  engage  in  interstate  trade  in  such 
commodities.  Many  of  such  syrup  mixers  neces- 
sarily purchase  the  glucose  required  by  them  from 
the  defendant,  .  .  .  and  said  company,  with 
intent  to  suppress  and  destroy  such  independent 
syrup  mixing,  has  on  some  occasions  sold  its 
own  brands  of  mixed  syrups,  particularly  its 
'Karo,*  at  such  prices  that  the  differential  between 
the  cost  of  glucose  to  said  syrup  mixers  and  the 
selling  price  of  mixed  syrup  has  been  such  that  the 
business  was  often  carried  on  at  less  than  cost  of 
manufacture  to  said  syrup  mixers. 


Price-Discriminations  93 

''Petitioner  further  alleges  that  heretofore 
wholesale  and  jobbing  grocers  have  ordered 
mixed  syrups  from  said  [defendant]  Company, 
having  such  syrups  packed  at  the  plants  of  said 
company  under  the  private  brands  of  such  grocers 
or  jobbers,  and  that  said  [defendant]  Company 
has  practically  suppressed  the  private  brands  of 
said  jobbers  by  quoting  to  them  prices  on  its 
own  brands,  particularly  its  '  Karo, '  considerably 
less  than  the  prices  quoted  on  the  syrups  packed 
under  the  private  brands  of  such  jobbers.  To 
further  increase  the  sales  of  its  said  brands  of 
mixed  syrups  and  to  hamper  the  independent 
syrup  mixers,  said  [defendant]  Company,  has, 
on  occasions  and  in  markets  where  independent 
competition  was  aggressive,  given  bonuses  of 
from  one  to  two  cases  of  its  mixed  syrups  with 
every  order  for  five  cases  of  such  syrups  ordered 
by  jobbers  and  retailers." 

THOROUGHNESS  OF  COURT  DECREES 

As  a  plain  matter  of  fact,  the  Government  is 
quite  inflexibly  opposed  to  any  manipulation  of 
prices,  by  whatever  means,  when  it  has  the  ap- 
pearance of  being  done  in  furtherance  of  an  attempt 
to  monopolize  any  considerable  part  of  the  trade. 


94  Business  Competition 

It  is  one  of  the  principles  of  the  common  law  that  a 
man  may  do  what  he  will  with  his  own  property,  so 
long  as  he  does  not  thereby  interfere  with  the 
right  of  another.  He  may  use  it  or  let  it  stand 
idle,  he  may  sell  it  or  keep  it  or  sell  only  a  part  of 
it,  he  may  even  destroy  it,  provided,  of  course, 
that  none  of  those  acts  shall  infringe  upon  the 
rights  of  anybody  else.  In  anti-trust  cases, 
however,  the  Government  is  inclined  to  give  a 
rather  liberal  interpretation  to  that  proviso,  and  a 
manufacturer's  common-law  right  to  do  what  he 
wdll  with  his  own  goods  is  not  always  clear  when  the 
effect  of  what  he  does  is  reflected  in  prices.  One 
of  the  most  drastic  consent  decrees  the  Govern- 
ment ever  secured  bears  directly  upon  that  point, 
and  it  is  significant  to  note  the  minuteness  with 
which  the  decree  specifies  what  may  and  may 
not  be  done  with  a  surplus  by-product.  The 
decree  in  question  was  entered  in  19 13,  and  among 
other  things  provides : 

"That  said  defendants  and  each  and  all  of 
them  are  forever  enjoined  and  prohibited  from 
selling  coal  tar  or  oil  tar  to  one  or  more  competitors 
of  said  [defendant]  Company,  competing  with  said 
company  in  any  line,  for  a  less  price  f.  o.  b.  the 
same  point  of  shipment  than  said   [defendant] 


Price-Discriminations  95 

Company  sells  the  same  products  to  any  other 
competitor  in  the  same  line.  .  .  . 

"That  said  defendant  companies  and  defendant 
individuals  of  said  companies  and  each  of  them 
are  forever  enjoined  and  prohibited  from  bin-ning 
for  fuel  or  exporting  any  coal  tar  or  oil  tar  or 
briquetting  pitch  owned  by  them,  when  such 
burning  or  exporting  is  done  at  a  net  loss,  taking 
into  consideration  all  resulting  by-products,  with- 
out first  advertising  for  thirty  days  for  bids  for 
such  coal  tar,  oil  tar,  or  pitch,  and  without  thereby 
being  able  to  sell  same  to  competitors  at  higher 
prices;  except  that  nothing  in  this  clause  shall 
prevent  the  defendant  companies  from  using  coal 
tar  or  oil  tar  as  fuel  when  it  is  economical  to  do  so 
or  when  obliged  to  bum  liquid  fuel  on  account  of 
public  ordinances.  By  the  use  of  the  word  *  eco- 
nomical '  herein  is  meant  that'when  the  fuel  value 
of  oil  tar  or  coal  tar  is  greater  to  said  [defendant] 
Company  than  the  fuel  value  of  coal  or  other 
usable  fuels,  then  coal  tar  or  oil  tar  may  be  burned 
for  fuel." 

It  may  come  as  a  surprise  to  some  concerns  to 
be  told  that  this  company  was  enjoined  from  the 
common  practice  of  refusing  to  dump  a  surplus 
product  on  a  weak  market.     Yet  that  is  exactly 


96  Business  Competition 

what  it  amounts  to.  It  was  cheaper  in  the  end 
for  the  company  to  bum  its  by-product  for  fuel, 
or  to  ship  it  abroad  at  a  net  loss,  than  to  flood 
the  home  market  with  it  and  permanently  depress 
prices.  But,  from  the  Government's  viewpoint, 
this  was  simply  a  device  to  force  prices  up,  and  to 
keep  them  there.  Taken  in  connection  with  a 
number  of  other  acts,  it  was  construed  as  evidence 
of  an  attempt  to  monopolize  the  trade,  and  to 
dictate  prices.  What  the  courts  would  have 
ruled  concerning  the  disposition  of  the  surplus 
product,  if  the  case  had  been  contested,  is,  of 
course,  problematical.  The  decree  stands,  how- 
ever, just  as  I  have  quoted  it.  And  this  much, 
at  least,  can  be  said :  that  any  plan  which  con- 
templates the  withholding  of  a  surplus  product 
from  the  market,  or  the  diverting  of  it  through 
unusual  channels,  for  the  purpose  of  controlling 
prices,  should  be  scrutinized  with  extreme  care 
before  it  is  adopted.  I  shall  revert  to  this  subject 
again,  more  in  detail,  in  subsequent  chapters. 

These  cases,  which  involve  specific  instances 
of  price-discriminations  or  attempts  to  control 
prices,  are  very  plentiful.  I  have  selected  for 
extended  comment  only  those  which  best  illustrate 
the  general  principles  upon  which  the  Govern- 


Price-Discriminations  97 

ment  and  the  courts  are  disposed  to  rely  in  deciding 
whether  a  given  course  of  conduct  is  legitimate  or 
the  reverse.  It  is  to  be  remembered  that  these 
attempts  to  control  or  to  manipulate  prices  are  not 
regarded  as  crimes  in  themselves.  They  are  evi- 
dence of  a  plan  or  a  purpose  to  restrain  trade  or  to 
monopolize,  and  if  the  concern  in  question  is 
not  at  the  same  time  doing  other  things  which  the 
Government  regards  with  disfavour,  they  may  be 
passed  over.  Here,  as  always,  the  intent  is  the 
essential  element  of  the  crime,  and  not  the  overt 
acts  which  may  or  may  not  have  been  done  as  a 
result  of  an  unlawful  purpose.  The  same  act  may 
be  illegal  in  one  set  of  circumstances,  and  per- 
fectly lawful  in  another,  according  to  the  purpose 
which  actuated  it. 

It  is  quite  possible,  however,  that  a  concern 
may  be  enjoined  from  the  continuance  of  a  price- 
regulating  policy,  and  at  the  same  time  stand 
absolved  on  all  other  points.  Such  a  situation  is 
found  in  the  Government's  case  against  the  so- 
called  North  Atlantic  Steamship  Pool  where  the 
court  declined  to  dissolve  the  combination  of 
steamship  owners,  but  did  enjoin  the  practice 
of  using  ''fighting  ships"  to  maintain  steerage 
rates.     The   court's   reasoning   on   the   point   is 


9^  Business  Competition 

significant  as  showing  how,  in  the  light  of  sur- 
rounding circumstances,  a  single  act  may  be  thrown 
into  high  relief.  I  quote  from  the  decision  of 
the  court: 

"The  writer's  opinion,**  said  Judge  Lacombe, 
"as  to  what,  under  prior  decisions,  was  the  con- 
struction to  be  given  to  the  Sherman  Anti-Trust 
Act,  will  be  found  fully  set  forth  in  U.  S.  vs. 
American  Tobacco  Company.  ...  If  that  con- 
struction were  followed  in  this  case,  there  could 
be  no  doubt  as  to  the  conclusion  to  be  reached 
upon  the  facts  proved.  It  is  practically  not 
disputed  that,  by  the  various  agreements  and 
conferences  which  together  constitute  the  com- 
bination complained  of,  that  branch  of  trans- 
Atlantic  commerce  which  is  concerned  with  the 
transport  of  steerage  passengers  is  arbitrarily  in- 
terfered with,  so  that  the  proportion  of  it  carried 
by  the  various  lines,  which  have  so  combined, 
are  not  as  they  would  be  if  full,  free,  and  un- 
restricted competition  were  the  sole  controlling 
power  to  effect  the  distribution. 

"Since  the  decision  above  cited,  however,  there 
have  been  two  exhaustive  opinions  of  the  Supreme 
Court  dealing  with  this  act.  Standard  Oil  Com- 
pany vs.  United  States  .  .  .  and  United  States 


Price-Discriminations  99 

vs.  American  Tobacco  Company.  .  .  .  The  effect 
of  these  would  seem  to  be  that  contracts  and 
methods  of  business,  which  do  in  fact  restrain 
or  interfere  with  competition,  are  not  to  be  held 
obnoxious  to  the  provisions  of  the  act,  unless 
such  restraint  or  interference  is  'unreasonable*  or 
'undue.*  .  .  . 

"Referring  now  to  the  facts  in  proof:  One  of 
the  matters  complained  of  is  what  is  called  in 
the  testimony  the  providing  of  *  fighting  ships.* 
Upon  occasions  when  some  steamship  owner  or 
charterer,  not  a  member  of  the  combination,  has 
put  a  vessel  on  a  berth  adjoining  one  from  which 
vessels  of  a  member  of  the  combination  were 
about  to  sail,  and  has  offered  to  carry  passengers 
at  a  lower  rate  than  that  asked  by  such  member, 
an  extra  vessel  has  been  put  on,  ostensibly  by  one 
of  the  lines  in  the  combination,  but  really  by  the 
combination  itself,  at  the  same  or  a  lower  rate, 
and  all  have  co-operated  to  furnish  such  a  *  fighting 
ship '  and  thereby  keep  out  the  competitor.  This 
seems  clearly  to  be  within  the  prohibition  of  the 
act.  .  .  . 

"The  Allan  Line  and  Canadian  Pacific  Line 
withdrew  from  the  *  fighting  ship  *  agreement  before 
the  bill  was  filed.     As  to  both  these  defendants 


loo  Business  Competition 

the  bill  is  dismissed.  As  to  the  other  defendants 
injunction  will  issue  against  the  continuance  of  the 
'fighting  ships/  and  as  to  the  other  prayers  for 
leHef  the  bill  is  dismissed." 

The  fact  that,  on  appeal  to" the  Supreme  Court, 
the  decree  was  reversed  and  the  bill  entirely  dis- 
missed, on  the  ground  that  the  European  War  had 
put  an  end  to  the  Pool,  does  not  detract  from  the 
significance  of  this  injunction  against  the  use  of 
'*  fighting  ships." 


a 


CHAPTER  V 


EXCLUSIVE-DEALER        AGREEMENTS 


There  are  very  few  trades  indeed  in  which 
some  form  of  exclusive  agreement  with  distributors 
does  not  exist.  Such  agreements  are  sometimes 
based  upon  written  forms  of  contract.  Some- 
times they  may  rest  solely  upon  an  oral  under- 
standing between  the  parties.  A  manufacturer 
may  grant  the  exclusive  sale  of  his  product  to  a 
single  dealer  in  a  town,  or  to  a  single  jobber  in  a 
given  territory,  in  return  for  a  certain  standard  of 
service;  or  he  may  offer  to  sell  his  goods  only  to 
those  dealers  or  jobbers  who  will  refrain  from 
handling  the  goods  of  competitors.  Again,  he 
may  confine  the  sale  of  some  special  product  to 
such  distributors  as  will  agree  to  handle  his  whole 
line;  and  so  on.  The  manufacturer  of  a  number  of 
products  in  the  same  general  class  sometimes 
parcels  them  out  among  the  several  dealers  in  a 
given  town,  granting  to  each  dealer  the  exclusive 


lOI 


'ib^' '   '  ''-'Biisihess  Competition 

right  to  sell  a  particular  product.  The  producer 
of  some  single  product  may  sell  it  to  all  distributors 
for  resale  under  private  brands,  and  at  the  same 
time  give  certain  jobbers  the  exclusive  sale  of  the 
same  product  under  the  factory  brand.  In  fact, 
the  forms  of  exclusive  agreement  are  so  varied, 
and  its  use  is  so  extensive,  that  almost  every 
manufacturer  or  distributor  comes  at  some  point 
into  contact  with  it.     . 

Now  each  of  those  forms  of  agreement,  as  well 
as  some  others  which  I  have  not  mentioned  spe- 
cifically, has  at  some  time  or  other  been  woven 
into  the  fabric  of  a  Government  prosecution  for 
restraint  of  trade.  Some  of  them  have  been 
specifically  upheld  by  the  courts,  and  some  have 
been  definitely  condemned.  Some  have  been 
sharply  criticized  when  occurring  in  one  set  of 
circumstances,  while  the  same  acts  have  been 
declared  blameless  w^hen  they  were  committed 
under  different  conditions.  To  attempt  to  ascer- 
tain the  legality  of  a  particular  form  of  exclusive 
agreement  may  seem  like  trying  to  locate  the 
elusive  pea  under  the  three  walnut-shells — much 
of  this  whole  subject  of  the  anti-trust  laws  bears 
some  resemblance  to  that  pastime — ^yet  the  manu- 
facturer, and  particularly  the  advertising  manu- 


"Exclusive-Dealer"  Agreements    103 

facturer,  may  find  that  great  consequences  depend 
upon  that  very  issue.  No  one  who  has  not  actu- 
ally had  the  experience  can  understand  the  dogged 
persistence  with  which  the  Government  pursues  the 
slightest  suspicion  that  such  agreements  exist,  or 
the  ingenuity  that  it  sometimes  exercises  in  putting 
upon  them  the  most  sinister  interpretation. 

It  may  be  stated  briefly  that  nothing  is  calcu- 
lated to  arouse  the  energies  of  the  Department  of 
Justice  more  quickly  than  the  suggestion,  no 
matter  how  remote,  that  a  product  is  sold  on  an 
"exclusive"  basis.  The  cross-examinations  which 
are  conducted  by  the  Government  agents  with  a 
view  to  ferreting  out  suspected  agreements  with 
jobbers  or  dealers  are  almost  unbelievably  vigorous 
and  remorseless.  Let  me  cite  one  instance  which 
fell  under  my  own  observation. 

"exclusive-dealer"  agreements  under 
suspicion 

A  certain  concern  had  received  an  application 
for  territory  from  a  jobber  somewhere  in  the 
Middle  V/est.  For  perfectly  legitimate  reasons, 
this  concern  did  not  desire  to  take  on  that  particu- 
lar jobber,  and  yet  did  not  care  to  offend  him.  So 
the  president  wrote  him  a  nice  letter,  stating  that  it 


104  Business  Competition 

had  been  found  advisable  to  deal  only  through 
jobbers  who  did  a  certain  minimum  gross  business 
and  employed  a  certain  number  of  salesmen. 
There  were  some  other  conditions,  too,  of  no 
particular  importance,  and  the  whole  thing  con- 
sisted of  a  rather  graceful  "turn  down**  which 
effectually  disposed  of  the  whole  matter. 

But  a  year  or  two  later,  when  the  concern  was 
under  suspicion  of  restraining  trade,  the  Govern- 
ment discovered  the  carbon  copy  of  that  letter  in 
the  files,  and  straightway  demanded  a  copy  of 
the  concern's  "agreement**  with  its  distributors. 
No  such  "agreement"  existed,  or  ever  had  existed, 
yet  the  Government  nearly  turned  the  whole 
organization  upside  down  in  the  endeavour  to 
find  one.  The  casual  "turn  down"  of  an  un- 
desirable customer  had  become  a  formidable 
piece  of  evidence,  and  the  officers  of  the  concern 
spent  many  long  and  perspiring  hours  with  the 
District  Attorney  before  they  succeeded  in  ex- 
plaining it  to  his  satisfaction. 

I  mention  this  incident  chiefly  for  the  purpose 
of  showing  the  importance  which  the  Government 
attaches  to  exclusive  relationships  with  distribu- 
tors. We  shall  find,  when  we  come  to  examine 
the  court  opinions,  that  they  are  not  always  in 


Exclusive-Dealer"  Ao^reements   105 


i5^ 


harmony  with  the  Government's  notions.  But 
this  fact  is  to  be  noted:  After  a  few  complaints 
have  been  made  w^hich  have  even  a  superficial 
appearance  of  soundness,  the  Government  is  al- 
most invariably  certain  to  put  the  most  sinister  con- 
struction upon  such  a  relationship.  A  system  of 
distribution  through  "exclusive-dealers^or -jobbers 
is  often  the  first  point  of  attack  and  the  object  of 
the  most  bitter  condemnation.  A  special  section 
of  the  Clayton  Act'  was,  indeed,  framed  for  the 
purpose  of  emphasizing  the  importance  of  this 
branch  of  the  subject. 

Now  here  again  it  is  necessary  to  bear  clearly 
in  mind  the  distinction  between  the  view  of  the 
Government  and  the  view  of  the  courts.     There 

^  Sec.  3.  That  it  shall  be  unlawful  for  any  person  engaged  in 
commerce,  in  the  course  of  such  commerce,  to  lease  or  make  a  sale 
or  contract  for  sale  of  goods,  wares,  merchandise,  machinery, 
supplies  or  other  commodities,  whether  patented  or  unpatented, 
for  use,  consumption,  or  resale  within  the  United  States  or  any 
Territory  thereof  or  the  District  of  Columbia  or  any  insular  pos- 
session or  other  place  under  the  jurisdiction  of  the  United  States, 
or  fix  a  price  charged  therefor,  or  discount  from  or  rebate  upon, 
such  price,  on  the  condition,  agreement  or  understanding  that 
the  lessee  or  purchaser  thereof  shall  not  use  or  deal  in  the  goods, 
wares,  merchandise,  machinery,  supplies  or  other  commodities 
of  a  competitor  or  competitors  of  the  lessor  or  seller,  where  the 
effect  of  such  lease,  sale,  or  contract  for  sale  or  such  condition, 
agreement,  or  understanding  may  be  to  substantially  lessen 
competition  or  tend  to  create  a  monopoly  in  any  line  of 
commerce. 


io6  Business  Competition 

is  little  doubt  that  the  Department  of  Justice  re- 
gards any  form  of  "  exclusive-dealer"  agreements 
with  foreboding.  The  courts,  however,  have 
not  yet  been  inclined  to  take  such  an  extreme 
view,  and  the  conflicts  which  are  so  often 
apparent  between  the  terms  of  consent  decrees 
and  the  principles  laid  down  in  court  opinions 
are,  to  say  the  least,  confusing.  And  this  confu- 
sion has  now  been  augmented  by  the  enactment 
of  the  Clayton  Law.  Unquestionably  the  Govern- 
ment officials  believe  that  the  Clayton  Law  specific- 
ally upholds  their  views  as  to  "exclusive-dealer" 
agreements.  Thus,  according  to  Section  3,  "it 
shall  be  unlawful  for  any  person .  .  .  to .  .  .  make 
a  sale  ...  of  goods  ...  on  the  condition,  agree- 
ment or  understanding  that  the  purchaser  thereof 
shall  not  use  or  deal  in  the  goods  ...  of  a  com- 
petitor .  .  .  where  the  effect  of  such  .  .  .  sale  .  .  . 
may  be  to  substantially  lessen  competition  or  tend 
to  create  a  monopoly''  (italics  added). 

But  nobody  knows  exactly  what  it  means  to 
"substantially  lessen  competition  or  tend  to  create 
a  monopoly."  Until  the  courts  have  had  a  chance 
to  pass  upon  it,  its  meaning  is  certainly  debatable. 
Without  doubt  the  Government  will  insist  upon  the 
strictest  possible  construction,  and  it  is  equally 


** Exclusive-Dealer''  Agreements   107 

certain  that  the  courts  will  weigh  it  in  the  light  of 
public  policy.  Just  as  the  Sherman  Act  which, 
when  read  literally,  forbids  attempts  to  monopolize 
any  part  of  trade  or  commerce,  has  nevertheless 
been  modified  by  the  famous  "rule  of  reason,"  so 
the  Clayton  Act  will  presumably  be  interpreted 
in  such  way  as  best  promote  the  public  welfare.^ 
It  is  quite  futile  to  attempt  to  make  predictions. 
The  Government's  first  important  case  under  the 
Clayton  Act  was  filed,  in  October,  191 5,  at  St. 
Louis,  against  the  United  Shoe  Machinery  Cor- 
poration, and  a  year  or  two  may  perhaps  elapse 
before  a  final  adjudication  can  be  arrived  at.  It 
is  useful,  however,  to  point  out  that  the  views  of 
the  courts  as  expressed  in  a  number  of  carefully 
considered  opinions,  under  the  Sherman  Act,  are 

^  It  is  interesting  to  note  that  while  the  Clayton  Act  appar- 
ently forbids  the  manufacturer  to  make  an  agreement  with  a 
dealer  whereby  the  latter  is  restrained  from  dealing  in  the  goods 
of  competing  manufacturers,  the  Act  does  not  prohibit  the 
dealer  from  making  an  agreement  restraining  the  manufacturer 
from  selling  to  competing  dealers.  In  passing  the  Clayton  Act, 
Congress  did  not  seem  to  fear  that  restraint  of  trade  might  arise 
when  a  dealer  prevents  his  fellow  merchants  from  handhng  a 
manufacturer's  goods.  So  far  as  the  Clayton  Act  is  concerned, 
the  dealer  can  say  to  the  manufacturer:  "I  will  handle  your 
line  if  you  will  sell  it  to  nobody  else  in  my  trade  territory."  The 
dealer  can  tie  up  the  manufacturer  as  much  as  he  likes,  but 
the  moment  the  manufacturer  attempts  to  tie  up  the  dealer 
the  Clayton  Act  steps  in. 


io8  Business  Competition 

not  at  all  in  harmony  with  the  contentions  of  the 
Government  as  they  appear  in  consent  decrees,  in 
bills  of  complaint,  and  in  the  Government's  con- 
struction of  the  Clayton  Act.  Let  us  examine  one 
of  the  leading  contested  cases  on  this  point  of 
*' exclusive-dealer  "  agreements,  and  compare  the 
reasoning  of  the  court  with  the  claims  of  the 
Government. 

A  court's  view  of  the  manufacturer's  rights 

The  case  in  question  is  that  of  an  individual 
who  sued  for  threefold  damages  under  the  Sher- 
man Act  against  a  tobacco  manufacturer.  The 
manufacturer  sold  its  products  at  a  certain  price 
to  such  customers  as  would  not  handle  competing 
goods,  and  charged  a  uniformly  higher  price  to 
other  customers.  It  was  alleged  that  this  arrange- 
ment constituted  an  attempt  to  monopolize  such 
as  is  forbidden  by  the  Sherman  Act,  and  suit  was 
filed  by  a  dealer  who  felt  that  he  had  been  injured 
by  it.  In  deciding  the  case,  in  1903,  the  court 
said: 

"The  tobacco  company  and  its  competitors 
were  not  deaHng  in  articles  of  prime  necessity, 
like  com  and  coal,  nor  were  they  rendering  public 
or    quasi-public    service,    like    railroad    and    gas 


*' Exclusive-Dealer''  Agreements   109 

corporations.  Each  of  them,  therefore,  had  the 
right  to  refuse  to  sell  its  commodities  at  any  price. 
Each  had  the  right  to  fix  the  prices  at  which  it 
would  dispose  of  them,  and  the  terms  upon  which 
it  would  contract  to  sell  them.  Each  of  them  had 
the  right  to  determine  with  what  persons  it  would 
make  its  contracts  of  sale.  .  .  .  The  exercise  of 
these  undoubted  rights  is  essential  to  the  very 
existence  of  free  competition,  and  so  long  as  their 
exercise  by  any  person  or  corporation  in  no  way 
deprives  competitors  of  the  same  rights,  or  restricts 
them  in  the  use  of  these  rights,  it  is  difficult  to 
perceive  how  their  exercise  can  constitute  any 
restriction  upon  competition  or  any  restraint  upon 
interstate  trade. 

"The  acts  of  the  defendant  which  are  alleged 
by  the  complaint  in  this  action  to  constitute  an 
imlawful  restraint  upon  interstate  commerce  are 
nothing  more  than  the  lawful  exercise  of  these 
unquestioned  rights  which  are  indispensable  to 
the  existence  of  competition  or  to  the  conduct  of 
trade.  The  tobacco  company  and  its  employee 
fixed  the  prices  of  its  commodities  so  high  that  the 
plaintiff  could  not  profitably  buy  them.  This 
was  no  restriction  upon  free  competition,  because 
it  left  the  rivals  of  the  company  free  to  sell  their 


no  Business  Competition 

competing  commodities  at  any  price  which  they 
elected  to  charge  for  them.  It  would  have  been 
no  violation  of  the  law  under  consideration  if  the 
tobacco  company  and  its  employee  had  combined 
to  refuse  to  sell  any  of  its  commodities  at  any 
price,  and  to  retire  from  the  business  in  which 
they  were  engaged  entirely.  Much  less  could  it 
be  a  violation  of  this  act  for  them  to  fix  their 
prices  too  high  for  profitable  investment  by  the 
plaintiff. 

"The  tobacco  company  and  its  employee  sold 
its  products  to  customers  who  refrained  from  deal- 
ing in  the  goods  of  its  competitors  at  prices  which 
rendered  their  purchases  profitable.  But  there 
was  no  restriction  upon  competition  here,  because 
this  act  left  the  rivals  of  the  tobacco  company 
free  to  sell  their  competing  commodities  to  all 
other  purchasers  than  those  who  bought  of  the 
defendants,  and  free  to  compete  for  sales  to  the 
customers  of  the  tobacco  company  by  offering 
to  them  goods  at  lower  prices  or  on  better  terms 
than  they  secured  from  that  company.  The 
tobacco  company  and  its  employee  were  not 
required,  like  competitors  engaged  in  public  or 
quasi-public  service,  to  sell  to  all  applicants  who 
sought  to  buy,  or  to  sell  to  all  intending  purchasers 


** Exclusive-Dealer "  Agreements   iii 


at  the  same  prices.  They  had  the  right  to  select 
their  customers,  to  sell  and  to  refuse  to  sell  to 
whomsoever  they  chose,  and  to  fix  different  prices 
for  sales  of  the  same  commodities  to  different 
persons.  In  the  exercise  of  this  right  they  selected 
those  persons  who  would  refrain  from  handling 
the  goods  of  their  competitors  as  their  customers, 
by  selling  their  products  to  them  at  lower  prices 
than  they  offered  them  to  others.  There  was 
nothing  in  this  selection,  or  in  the  means  employed 
to  effect  it,  that  was  either  illegal  or  immoral.  .  .  . 
"It  is  contended,  however,  that  this  selection 
by  the  defendants  of  customers  who  refrained  from 
selling  the  goods  of  their  competitors  violated 
Section  2  of  the  anti-trust  act,  because  it  was 
an  '  attempt  to  monopolize  .  .  .  part  of  the  trade 
or  commerce  among  the  several  States.'  It  is 
admitted  that  the  practice  of  the  defendants  was 
not  only  an  attempt,  but  a  successful  attempt, 
to  monopolize  a  part  of  this  commerce.  But  is 
every  attempt  to  monopolize  any  part  of  inter- 
state commerce  made  unlawful  and  punishable 
by  Section  2  of  the  Act  of  July  2,  1890  .  .  .  ?  If 
so,  no  interstate  commerce  has  ever  been  lawfully 
conducted  since  that  act  became  a  law,  because 
every  sale  and  every  transportation  of  an  article 


112  Business  Competition 

which  is  the  subject  of  interstate  commerce  is  a 
successful  attempt  to  monopolize  that  part  of 
this  commerce  which  concerns  that  sale  or  trans- 
portation. An  attempt  by  each  competitor  to 
monopolize  a  part  of  interstate  commerce  is  the 
very  root  of  all  competition  therein.  Eradicate  it, 
and  'competition  'necessarily  ceases — dies.  Every 
person  engaged  in  interstate  commerce  necessarily 
attempts  to  draw  to  himself,  and  to  exclude  others 
from,  a  part  of  that  trade;  and,  if  he  may  not  do 
this,  he  may  not  compete  with  his  rivals,  all  other 
persons  and  corporations  must  cease  to  secure  for 
themselves  any  part  of  the  commerce  among  the 
States,  and  some  single  corporation  or  person 
must  be  permitted  to  receive  and  control  it  all 
in  one  huge  monopoly.  .  .  . 

"It  was  not — it  could  not  have  been — the  pur- 
pose or  the  effect  of  the  second  section  of  this  law 
[the  Sherman  Act]  to  prohibit  or  to  punish  the 
customary  and  universal  attempts  of  all  manu- 
facturers, merchants,  and  traders  engaged  in  in- 
terstate commerce  to  monopolize  a  fair  share  of 
it  in  the  necessary  conduct  and  desired  enlarge- 
ment of  their  trade,  while  their  attempts  leave 
their  competitors  free  to  make  successful  endeav- 
ours of  the  same  kind.     The  acts  of  the  defendants 


*  *  Exclusive-Dealer ' '  Agreements    1 1 3 

were  of  this  nature,  and  they  did  not  violate 
the  second  section  of  the  law.  An  attempt  to 
monopolize  a  part  of  interstate  commerce,  the 
necessary  effect  of  which  is  to  stifle  or  to  directly 
and  substantially  restrict  competition  in  com- 
merce among  the  States,  violates  the  second 
section  of  this  act.  But  an  attempt  to  monopolize 
a  part  of  interstate  commerce  which  promotes,  or 
but  indirectly  or  incidentally  restricts,  competi- 
tion therein,  while  its  main  purpose  and  chief 
effect  are  to  increase  the  trade  and  foster  the 
business  of  those  who  make  it,  was  not  intended 
to  be  made,  and  was  not  made,  illegal  by  the 
second  section  of  the  act  under  consideration, 
because  such  attempts  are  indispensable  to  the 
existence  of  any  competition  in  commerce  among 
the  States. 

IS  IT  RIGHT  TO  FAVOUR  "  EXCLUSIVE-DEALERS  "? 

*' There  is  another  reason  why  the  complaint  in 
this  action  fails  to  state  facts  sufficient  to  con- 
stitute a  cause  of  action:  The  sole  cause  of  the 
damages  claimed  in  it  is  shown  to  be  the  refusal 
of  the  defendants  to  sell  their  goods  to  the  plaintiff 
at  prices  which  would  enable  him  to  resell  them 
with  a  profit.     Now,   no  act  or  omission  of  a 


114  Business  Competition 

party  is  actionable,  no  act  or  omission  of  a  person 
causes  legal  injury  to  another,  unless  it  is  either 
a  breach  of  a  contract  with  or  of  a  duty  to  him. 
The  damages  from  other  acts  or  omissions  form  a 
part  of  that  damnum  absque  injuria  for  which 
no  action  can  be  maintained  or  recovery  had  in 
the  courts.  The  defendants  had  not  agreed  to  sell 
their  goods  to  the  plaintiff  at  prices  which  would 
make  their  purchase  profitable  to  him,  so  that 
the  damages  he  stiff ered  did  not  result  from  any 
breach  of  any  contract  with  him.  They  were  not 
caused  by  the  breach  of  any  legal  duty  to  the 
plaintiff,  for  the  defendants  owed  him  no  duty 
to  sell  their  products  to  him  at  any  price — much 
less  at  prices  so  low  that  he  could  realize  a  profit 
by  selling  them  again  to  others.  The  complaint 
therefore  fails  to  show  that  any  legal  injury  or 
actionable  damages  were  inflicted  upon  the  plaintiff 
by  the  acts  of  the  defendants  and  the  judgment 
below  is  affirmed." 

This  doctrine  has  been  several  times  upheld  in 
the  courts.  It  was  affirmed  in  slightly  different 
phraseology  in  the  Cream  of  Wheat  case,  in  19 15, 
where  Judge  Hough  said: 

"Numerous  individuals  and  corporations  have 
been  enjoined  from  restraining  the  trade  of  other 


** Exclusive-Dealer'*  Agreements  115 

people,  no  matter  how  flourisliing  the  offender's 
trade  might  be,  nor  how  greatly  the  general 
volume  of  trade  has  increased  during  the  period 
of  restraint.  But  neuer  before  has  it  been  urged 
that,  if  I,  5.  made  enough  of  anything  to  supply 
both  Doe  and  Roe,  and  sold  it  all  to  Doe,  refusing 
even  to  bargain  with  Roe,  for  any  reason  or  no 
reason,  such  conduct  gave  Roe  a  cause  of  action** 
(italics  added). 

In  the  Cream  of  Wheat  case  there  was,  to  be 
sure,  no  question  of  "exclusive-dealer"  agree- 
ments; and  the  protestation  above  quoted  was 
elicited  by  the  plaintiff's  contention  that  the  Cream 
of  Wheat  Company's  mere  refusal  to  sell  was  in 
violation  of  the  Clayton  Act  because  inspired  by 
the  Cream  of  Wheat  Company's  desire  to  discipline 
the  plaintiff  in  violation  of  the  anti-trust  act  for 
** cutting"  resale  prices  on  Cream  of  Wheat.  But 
if  maintenance  of  resale  prices  can  be  compelled  by 
exercise  of  the  right  to  refuse  to  sell,  then  certainly 
it  ought  to  follow  that  manufacturers  can  refuse 
to  fill  further  orders  from  dealers  who  persist  in 
handling  rival  goods,  and  by  this  means  can  cir- 
ctimvent  the  alleged  purpose  of  the  Clayton  Act. 
In  this  connection  Judge  Lacombe's  language  in 
the  opinion  of  the  Circuit  Court  of  Appeals  con- 


ii6  Business  Competition 

firming  Judge  Hough's  decision  above  quoted  is 
particularly  emphatic. 

"We  had  supposed/'  said  the  judge,  "that  it 
was  elementary  law  that  a  trader  could  buy  from 
whom  he  pleased  and  sell  to  whom  he  pleased, 
and  that  his  selection  of  seller  and  buyer  was 
wholly  his  own  concern.  .  .  .  Before  the 
Sherman  Act  it  was  the  law  that  a  trader  might 
reject  the  offer  of  a  proposing  buyer,  for  any  reason 
that  appealed  to  him;  it  might  be  because  he  did 
not  like  the  other's  business  methods,  or  because 
he  had  some  personal  difference  with  him,  political, 
racial,  or  social.  That  was  purely  his  own  affair, 
with  which  nobody  else  had  any  concern.  Neither 
the  Sherman  Act,  nor  any  decision  of  the  Supreme 
Court  construing  the  same,  nor  the  Clayton  Act, 
has  changed  the  law  in  this  particular.  We 
have  not  yet  reached  the  stage  where  the  selection  of  a 
trader's  customers  is  made  Jor  him  by  the  govern- 
ment" (italics  added). 

With  this  view  the  Government  has  several 
times  expressed  a  hearty  dissent,  and  neither  the 
right  of  refusal  to  sell  nor  the  legal  status  of  "  ex- 
clusive-dealer "  agreements  can  yet  be  regarded 
as  finally  settled.  The  Watch-case  decision  in  a 
preceding  chapter  has  been  contrasted  with  the 


'* Exclusive-Dealer'*  Agreements   117 

Cream  of  Wheat  case.  There  the  Watch-case 
company  had  sent  out  a  circular  requesting  "that 
the  jobbers  to  whom  we  sell  our  goods  shall  not 
deal  in  any  watch-cases  other  than  those  manu- 
factured by  us."  In  enjoining  the  company 
from  enforcing  this  threat  against  its  dealers, 
the  court  said: 

"They  were  already  established  customers, 
not  only  of  the  defendant  company,  but  also  of  its 
competitors,  and  had  already  become  trade  out- 
lets for  every  manufacturer  of  cases  whose  wares 
they  had  been  accustomed  to  buy.  Now,  what 
the  defendant  company  did  was  either  to  close 
these  already  existing  and  already  utilized  out- 
lets, or  to  narrow  them  materially,  so  far  as  the 
cases  of  its  competitors  were  concerned;  and  we 
think  the  proposition  need  not  be  discussed  that 
this  was  pro  tanto  a  direct  and  unlawful  restraint 
of  trade." 

That  an  "  exclusive- dealer  "  agreement  may  be 
legal,  if  standing  alone,  was  intimated  by  Judge 
Hazel,  in  191 5,  in  the  Kodak  case. 

"Defendants  argue  generally,"  said  the  judge, 
"that  manufacturers  have  the  legal  right  to  en- 
courage dealers  by  extra  profits  or  by  other  fair 
inducements  to  handle  their  goods  exclusively; 


ii8  Business  Competition 

that  such  an  arrangement  is  to  the  interests  of 
both;  and  that  the  Eastman  Kodak  Company- 
was  the  first  to  induce  stationers,  druggists,  and 
others  to  handle  its  goods  as  a  side  line.  All 
this  and  more,  it  may  he  conceded,  separated  from 
other  acts,  might  furnish  no  ground  for  holding  that 
there  was  an  illegal  monopoly,  but  the  arbitrary 
enforcement  of  the  restrictive  conditions  by  the 
establishment  of  a  system  of  espionage  and  the 
keeping  of  records  of  violations  of  such  conditions 
with  a  view  of  penalizing  such  dealers,  are  evi- 
dences of  an  intention  to  promote  a  monopoly" 
(italics  added). 

The  Supreme  Court,  in  191 5,  expressed  the  same 
view,  and  sustained  the  validity  of  a  contract  for 
exclusive  dealing  entered  into  by  a  dealer  with 
a  glucose  manufacturer  in  consideration  of  a 
promised  rebate,  after  holding  that  the  fact  that 
the  glucose  manufacturer  was  an  unlawful  com- 
bination could  not  be  availed  of  in  the  action. 
That  this  system  of  contracts,  along  with  other 
contracts  of  this  glucose  company,  has  since  been 
denounced  as  monopolistic  by  the  District  Court, 
in  a  Government  suit  against  the  company  under 
the  anti-trust  act,  and  the  company  has  been 
ordered  to  be  dissolved  as  a  combination  in  viola- 


**  Exclusive-Dealer  "  Agreements   119 

tion  of  the  anti-trust  act,  merely  illustrates  the 
now  familiar  fact  that  a  practice  innocent  in  itself 
may  nevertheless  be  a  link  in  the  chain  of  a  con- 
spiracy in  restraint  of  trade. 

WHAT  CONSENT  DECREES  SHOW 

This  is  what  the  courts  show.  From  this 
it  might  seem  safe  to  assume  that  an  agreement 
with  a  dealer  to  handle  one*s  goods  exclusively 
would  be  lawful,  provided  that  the  goods  are 
not  a  necessity  of  life,  that  competitors  are  not 
restrained  from  competing  with  one  another, 
and  that  the  situation  is  not  complicated  by  other 
acts  in  restraint  of  trade.  This  involves,  how- 
ever, the  further  assumption,  that,  as  Judge 
Hough  says  elsewhere  in  his  decision  above 
quoted,  *' there  is  nothing  in  the  Clayton  Act" 
—  notwithstanding  its  language  about  *' sub- 
stantially lessen  competition  or  tend  to  create 
a  monopoly" — "to  compel  or  induce  courts  to 
hold  that  the  trade  restraint  referred  to  by  this 
statute  differs  in  kind,  quality,  or  degree  from  that 
now  held  to  be  meant  by  the  Sherman  Act" ;  and 
this  assumption  is  quite  at  variance  with  the 
notions  of  the  Government  on  the  subject.  It  is 
conceivable  that  the  doctrine  expressed  above  may 


120  Business  Competition 

still  be  successfully  defended  in  t|ie  courts,  in  spitt 
of  the  Clayton  Act ;  but  uriless  a  man  is  prepared 
to  stand  the  expense  of  a  trial  he  is  likely  to  be  more 
interested  in  Uncle  Sam*s  view  of  the  matter. 
And  his  view,  as  expressed  in  some  of  the  consent 
decrees,  presents  some  very  interesting  contrasts 
to  the  doctrine  laid  down  by  the  courts  in  the 
decisions  above  quoted. 

For  example,  we  find  in  the  consent  decree 
obtained,  in  1914,  against  some  thread  manu- 
facturers, that  the  defendants  were  perpetually 
enjoined  "from  soliciting  or  exacting  from  whole- 
sale or  retail  dealers  or  jobbers  or  from  customers 
of  competitors  in  the  United  States  any  agree- 
ment not  to  handle  or  to  cease  handling  the 
brands  of  competitors;  or  from  refusing  to  deal 
with,  or  discriminating  against,  or  threatening  to 
refuse  to  deal  with  or  to  discriminate  against 
those  who  handle  the  goods  of  competitors;  or 
from  canvassing  the  retail  trade  of  any  dealer  or 
jobber  and  thereupon  offering  the  orders  thus 
obtained  to  such  dealer  or  jobber  upon  condition 
that  he  shall  cease  to  buy  thread  from  a  com- 
petitor of  the  defendant  or  of  any  of  them." 

That  is  pretty  sweeping  and  comprehensive, 
and  so  is  the  decree  consented  to,  in  191 1,  in  the 


** Exclusive-Dealer"  Agreements   121 

Electric  Lamp  case  which  provides  that  the  de- 
fendants are  "perpetually  enjoined  and  restrained 
from  making  or  enforcing  any  contracts,  arrange- 
ments, agreements,  or  requirements  with  dealers, 
jobbers,  and  consumers,  who  buy  from  the  said 
defendants  either  tantalum  filament,  tungsten 
filament,  metalized  carbon  filament  or  ordinary 
carbon  filament  lamps,  or  any  of  them,  by  which 
such  dealers,  jobbers,  and  consumers  are  com- 
pelled to  purchase  all  their  ordinary  carbon 
filament  lamps  from  said  defendants  as  a  condition 
to  obtaining  such  other  types  of  lamps,  or  any  of 
them,  or  by  which  dealers,  jobbers,  and  consumers 
are  compelled  to  purchase  any  one  or  more  of 
the  above-mentioned  types  of  lamps  from  the  said 
defendants  as  a  condition  to  the  purchase  or  sup- 
ply of  any  other  or  all  of  said  types  of  lamps ;  and 
.  .  .  from  discriminating  against  any  dealer, 
jobber,  or  consumer  desiring  to  purchase  tantalum, 
tungsten,  or  metalized  carbon  filament  lamps 
because  of  the  fact  that  such  dealer,  jobber,  or 
consumer  purchases  ordinary  carbon  filament 
lamps  from  others,  and  are  perpetually  enjoined 
and  restrained  from  discriminating  against  any 
dealer,  jobber,  or  consumer  desiring  to  purchase 
any  one  or  more  of  the  above-mentioned  types  of 


122  Business  Competition 

lamps  because  of  the  fact  that  such  dealer,  jobber, 
or  consumer  purchases  any  other  of  said  lamps 
from  other  manufacturers  or  dealers." 

No  comment  is  necessary  on  the  foregoing.  It 
is  evident  that  the  Government  goes  further — to 
say  the  least — than  the  carefully  qualified  con- 
clusions of  the  courts  in  the  decisions  above 
quoted.  An  agreement  with  a  distributor  which 
prevents  him  from  handling  competing  goods  is 
evidence  of  the  manufacturer's  wrongful  intent, 
and  he  must  take  the  burden  of  relieving  him- 
self from  that  presumption.  However  much  the 
courts  may  have  conceded  to  be  still  within  the 
positive  rights  of  business  men,  the  Government 
still  inclines  to  its  own  theory  of  the  matter. 

THEORY  APPLIED  TO  DIRECT  SALES 

Even  with  respect  to  sales  direct  to  the  con- 
sumer, the  Government  holds  to  the  same  theory. 
Thus  in  the  petition  against  some  can  manu- 
facturers— a  case  which  is  now  being  contested  in 
the  courts — we  find  the  following  accusation : 

"For  the  purpose  of  maintaining  control  of 
the  market,  the  principal  defendant  has  induced 
or  compelled  its  customers  to  enter  into  long-time 
contracts  to  purchase  cans  exclusively  from  it, 


**  Exclusive-Dealer  "  Agreements   123 

and  has  prevented  its  customers  from  dealing 
with  such  independent  establishments  as  exist, 
by  threats  (among  others)  that  if  they  do  so  it 
will  cancel  the  contracts  it  already  has  with  such 
customers  and  will  refuse  to  enter  into  further 
contracts  with  them  or  sell  any  cans  to  them. 
The  effect  of  such  threats  and  acts  is  to  pre- 
vent and  restrain  dealings  with  independent  can 
makers." 

Again,  in  the  petition  in  a  case  against  a  glucose 
manufacturer  now  pending  on  appeal  from  a  de- 
cision in  favour  of  the  Government,  the  petition 
recites : 

"In  November,  1906,  just  prior  to  the  time 
that  the  first  independent  glucose  factory  placed 
its  products  on  the  market,  the  defendant  .  .  . 
submitted  to  the  trade  what  was  designated  as  a 
profit-sharing  plan  or  proposition,  and  announced 
that  they  would  set  aside  out  of  the  profits  from 
the  sale  of  glucose  and  grape  sugar  for  the  last  six 
months  of  the  year  1906  and  pay  to  their  customers 
an  amount  equal  to  ten  cents  per  hundred  pounds 
on  all  sales  of  glucose  and  grape  sugar  made  to 
such  customers  during  such  period,  the  payment 
of  the  profits  to  be  made  on  December  31,  1907,  on 
condition  that  for  the  remainder  of  the  year  1906 


124  Business  Competition 

and  throughout  the  entire  year  1907  such  customer 
should  purchase  exclusively  from  the  [defendants] 
all  the  glucose  and  grape  sugar  required  for  use 
in  their  establishments.  The  rebating  or  profit- 
sharing  plan  was  continued  until  the  year  1910." 

It  is  the  practice  of  the  Government,  when  a 
substantial  looking  complaint  under  the  Sherman 
Act  has  been  lodged  against  a  manufacturer,  to 
place  upon  him  the  whole  burden  of  proving  that 
his  '*  exclusive-dealer  "  relations  are  free  from  the 
taint  of  a  wrongful  purpose.  Not  every  concern 
can  afford  the  expense  of  protracted  Htigation 
against  the  vast  resources  of  the  Department  of 
Justice.  Very  often  a  consent  decree  is  the  only 
way  out  of  a  bad  corner,  and  under  those  cir- 
cumstances the  Government  is  usually  able  to 
insist  upon  its  own  interpretation. 

It  is  interesting  to  note,  in  the  Harvester  case 
which  is  now  awaiting  a  final  decision  before  the 
Supreme  Court,  the  breadth  of  the  Government's 
original  charges  as  contrasted  with  the  results  of 
the  trial  of  the  case.  Although  the  Government 
won  its  case  in  the  lower  court,  none  of  the  charges 
based  on  its  dealer  contracts  appear  to  have  been 
sustained.  In  its  petition,  however,  which  was  filed 
in  the  District  Court  in   191 2,  the  Government 


*'  Exclusive-Dealer  "  Agreements  125 

laid  great  stress  upon  certain  "exclusive-dealer" 
agreements  which  it  regarded  as  clearly  unlawful, 
and  as  evidence  of  a  purpose  to  monopolize  the 
trade.     I  quote  from  the  original  bill  of  complaint : 

"By  reason  of  the  fact  that  defendants  manu- 
facture the  well-known  and  standard  types  of 
harvesting  machines  and  implements,  without 
which  the  implement  dealer  can  only  with  great 
difficulty,  if  at  all,  maintain  a  successful  business, 
defendants  have  been  and  now  are  enabled  to 
compel  such  implement  dealers  to  enter  into 
[exclusive]  contracts  of  the  character  described. 

"  In  towns  where  there  are  more  than  one  retail 
implement  dealer  defendants  have  adopted  and 
are  now  carrying  out  the  policy  of  giving  to  each 
dealer  the  exclusive  agency  for  a  certain  well- 
known  machine,  such  as  the  'McCormick*  or 
'  Deering  *  grain  binder  or  mower,  instead  of  giving 
to  one  dealer  an  agency  for  all  defendants*  lines, 
intending  thereby  to  obtain  for  themselves  the 
services  of  all  responsible  implement  dealers, 
and,  by  means  of  the  contracts  hereinbefore 
described,  to  monopolize  all  trade  and  commerce 
in  harvesting  and  agricultural  implements. 

"Since  defendants  acquired  a  monopoly  of 
harvesting  machinery,  they  have  expanded  into 


126  Business  Competition 

other  lines  of  agricultural  implements  and  are 
now  engaged  in  securing  a  monopoly  of  those  lines, 
among  other  ways  by  threats  to  dealers  to  with- 
hold from  them  the  harvesting  implements  of  the 
combination  unless  given  special  treatment  and 
preferences  in  respect  to  the  new  lines  of  agricul- 
tural machinery  manufactured  by  defendants,  or 
by  allowing  special  confidential  commissions  on 
harvesting  machinery  to  such  dealers,  or  by  giving 
unusual  credit,  or  by  the  exercise  of  the  power 
given  by  the  annulment  clause  in  the  contracts 
above  described." 

After  a  long  and  protracted  trial,  not  one  of 
those  charges  of  illegality  was  apparently  sustained 
by  the  court.  But  if  the  International  Harvester 
Company  had  been  a  small  concern,  which  had 
been  unable  to  contest  the  case,  or  if  it  had  been 
unwilling  to  submit  to  all  the  disagreeable  publi- 
city which  goes  with  a  Government  prosecution, 
it  would  most  probably  have  been  compelled  to 
consent  to  a  decree  finding  the  company  guilty 
of  all  these  agreements,  and  branding  all  of  them 
as  illegal,  and  restraining  the  company  from  con- 
tinuing any  of  them.  No  matter  how  necessary 
some  of  them  may  have  been  to  the  welfare  of 
the  company's  business,  the  Government's  theory 


*' Exclusive-Dealer"  Agreements   127 

of  their  illegality  would  probably  have  wiped 
them  off  the  slate  then  and  there.  That  is  one  of 
the  main  reasons  why  "exclusive-dealer"  arrange- 
ments should  be  entered  into  with  the  greatest 
circumspection,  and  watched  with  the  greatest 
care  and  patience.  The  view  of  the  courts,  as 
expressed  in  leading  cases,  gives  a  good  deal  of 
latitude  to  the  manufacturer  who  wants  to  protect 
his  product  by  some  form  of  exclusive  contract, 
but  the  attitude  of  the  Government,  with  the 
encouragement  it  appears  to  draw  from  the 
Clayton  Act,  indicates  that  he  may  possibly  have 
to  fight  for  it. 


CHAPTER  VI 

THE  SCOPE  OF  PATENT  PROTECTION 

A  CERTAIN  large  concern,  which  is  wise  in  this 
day  and  generation,  recently  sent  to  its  sales  force 
the  following  emphatic  instruction : 

"We  take  this  occasion  to  thank  the  individual 
members  of  the  sales  force  who  have  taken  the 
trouble  to  send  us  letters  of  congratulation  upon 
the  recent  favourable  patent  decision.  It  has  not 
been  possible  to  answer  those  letters  individually, 
but  they  are  appreciated  none  the  less  on  that 
account. 

"Our  success  in  this  patent  matter  is  a  source  of 
great  satisfaction  to  us  and  to  the  whole  organiza- 
tion. We  have  thought  it  best  that  our  salesmen 
and  agents  should  have  full  information  on  the 
subject,  and  a  copy  of  the  court's  opinion  is  en- 
closed herewith.  You  are  cautioned  definitely 
and  specifically,  however,  that  this  information  is 

under  no  circumstances  to  he  used  in  your  talks 

128 


Scope  of  Patent  Protection        129 

with  customers  or  prospective  customers  for  our  goods. 
You  are  to  explain  to  every  person  who  inquires 
that  requests  for  this  information  must  come  direct 
to  the  company's  patent  department." 

Now,  the  aggressive  sales  manager  is  quite  at 
liberty  to  regard  that  ruling  as  a  shameful  waste 
of  good  material.  It  is  quite  possible  that  the 
sales  manager  of  the  concern  in  question  does  so 
regard  it.  But  the  concern  is  wise  to  sacrifice 
whatever  sales  value  there  may  be  in  a  talking- 
point  based  upon  an  infringement  suit  against  a 
competitor,  for  the  patent  law  offers  no  means  of 
escape  from  the  provisions  of  the  anti-trust  laws. 
The  courts  have  repeatedly  passed  upon  that  point, 
and  more  than  one  concern  has  met  with  con- 
demnation for  indulging  m.  the  very  practice  which 
is  forbidden  in  the  instructions  quoted  above. 

INFRINGEMENT  A  DANGEROUS  COMPETITIVE  ARGU- 
MENT 

Now,  going  back  for  a  moment  to  the  matter 
of  using  infringement  suits  as  talking-points 
with  customers.  It  is  evident  that  when  a  concern 
sues  a  competitor  for  patent  infringement  and 
possibly  collects  heavy  damages  therefor,  it  is 
wholly  within  its  rights  as  laid  down  by  the  patent 


130  Business  Competition 

law.  But  when  it  permits  its  salesmen  to  use  the 
infringement  suit  as  a  competitive  argument  to 
intimidate  competitors*  customers,  and  to  prevent 
competitors  from  selling  their  goods,  it  is  rapidly 
getting  outside  of  the  domain  which  is  covered  by 
the  patent  law.  Such  tactics  are  not  provided 
in  the  patent  law,  and,  further,  are  not  necessary 
to  protect  the  rights  of  the  patentee  in  the  exclu- 
sive enjoyment  of  his  invention.  So  we  come  to  a 
second  general  principle,  which  is  this :  Patent  in- 
fringement is  no  justification  for  imfair  competition. 

It  is  highly  important  for  the  manufacturer  of 
patented  goods  to  get  these  principles  clearly  in 
mind  and  to  keep  them  there.  The  patent  law  is 
one  thing,  while  the  anti-trust  laws  are  something 
quite  different.  The  use  of  patents  to  accomplish 
what  would  otherwise  be  construed  as  a  violation 
of  the  anti-trust  laws  has  been  repeatedly  tried 
and  repeatedly  condemned.  It  is  not  only  natural, 
but  often  praiseworthy,  for  a  manufacttirer  to 
desire  to  get  the  greatest  possible  return  from  his 
investments  which  are  covered  by  patents;  but 
the  Government  is  quite  as  persistent  in  its  de- 
mands that  patents  shall  not  be  used  to  restrain 
trade  illegally. 

From  the  comparatively  simple  case  stated  at 


Scope  of  Patent  Protection        131 

the  head  of  this  chapter  we  may  turn  to  the  com- 
plexities of  the  Government's  prosecution  of  the 
Cash  Register  officials.  Threats  and  warning 
notices  concerning  infringement  suits  formed  an 
important  part  of  the  evidence  in  that  case.  The 
question  as  to  whether  or  not  they  went  beyond 
what  was  necessary  to  protect  the  company's 
patent  rights  was  not  specifically  determined. 
In  fact,  much  of  the  evidence  was  excluded  which 
the  company  offered  to  show  that  it  was  sub- 
jected to  outrageous  piracy  by  its  competitors, 
and  that  was  one  of  the  grounds  upon  which 
the  Circtdt  Court  of  Appeals,  in  1915,  granted 
the  defendants  a  new  trial.  It  was  declared, 
however,  as  a  general  proposition,  that  threats  and 
warning  notices  taken  in  connection  with  other 
acts  might,  under  certain  circumstances,  be  evi- 
dence of  a  purpose  to  crush  competition  and  to 
monopolize  trade. 

Bear  in  mind  that  what  are  here  being  discussed 
are  actual,  not  supposititious,  infringements;  and 
now  see  what  the  court  in  the  Cash  Register  case 
had  to  say  about  the  patentee's  duty,  under  the 
anti-trust  act,  to  his  competitor,  the  infringer, 
who  under  the  patent  law  has  no  right  whatsoever 
to  market  the  infringing  article. 


132  Business  Competition 

**This  brings  before  us,"  says  the  court,  "the 
question  whether  a  patentee  and  another,  or  the 
officers  and  agents  of  a  patentee,  can  conspire  in 
restraint  of  the  interstate  trade  or  commerce  in 
the  article  covered  by  the  patent  of  persons  who 
have  no  right  to  engage  in  such  trade  and  commerce 
and  who  by  engaging  therein  infringe  the  right 
of  the  patentee;  i.  e.,  whether  such  a  conspiracy 
comes  within  that  section.  Its  disposition  in- 
volves the  rights  of  a  patentee.  These  rights  are 
two,  one  statutory,  and  the  other  at  common 
law.  The  statutory  right  is  usually  stated  in  its 
adjective  form;  i.  e,,  to  exclude  or  to  prevent  others 
from  making,  using,  or  selling  the  article  covered 
by  the  patent,  or,  in  other  words,  to  sue  or  to 
bring  actions  against  others  who  are  or  have  been 
making,  using,  or  selling  them.  But  this  right 
has  also  a  substantive  form.  It  is  that  others 
shall  refrain  from  making,  or  using,  or  selling  the 
article.  The  patentee's  right  at  common  law  is  to 
make,  use,  or  sell  the  article.  This  right  is  to  no 
extent  dependent  on  the  statute.  The  patentee, 
therefore,  has  the  right  to  have  others  refrain 
from  selling  the  article  covered  by  his  patent,  and 
if  they  will  not  do  so  he  has  the  right  to  prevent 
them  from  selling  by  suit.     Has  a  patentee,  then, 


Scope  of  Patent  Protection        133 

the  right  to  prevent  any  infringer  from  selHng 
the  article  covered  by  his  patent  in  any  other 
way?  He  certainly  has  no  right  to  do  it  by  lull- 
ing him,  or  destroying  his  factory,  or  such  infringing 
articles  as  he  may  own.  In  selling  the  infringing 
article,  no  assaults  are  made  upon  his  person,  so 
that  there  is  no  room  for  claiming  that  his  action 
was  in  self-defense.  And  the  infringer  owns  his 
factory  and  articles.  The  patentee  may  be 
entitled  to  a  destruction  of  the  infringing  articles 
through  the  process  of  the  court,  but  not  other- 
wise. But  has  he  the  right  to  prevent  him  from 
so  doing  by  action  outside  of  the  courts,  not 
involving  an  invasion  of  the  rights  of  person  or 
property  of  the  infringer;  i.  e.,  by  the  use  of 
means  which  would  be  wrongful  if  used  by 
him  to  prevent  another  from  selling  articles  not 
covered  by  his  patent — i,  ^.,  such  means  as  are 
charged  here? 

''We  are  not  concerned  here  with  the  question 
as  to  what  a  patentee  may  himself  do  in  a  general 
way  to  protect  the  substantive  right  which  he  has 
from  invasion.  The  question  in  hand  is  whether 
he  and  another^  or  his  officers  and  agents  in  his 
interest,  may  conspire  to  prevent  an  invasion  of  his 
rights  in  the  interstate  field  by  the  use  of  any  such 


134  Business  Competition 

means.  This  depends  solely  on  whether  such  a 
conspiracy  is  within  the  first  section  of  the  anti- 
trust act.  And  it  would  seem  that  to  ask  this 
question  is  to  answer  it.  The  terms  of  the  section 
are  of  a  most  sweeping  character.  It  includes 
every  conspiracy  in  restraint  of  interstate  trade 
or  commerce.  It  is  not  a  question  whether  it  is 
rightful  or  wrongful  interstate  trade  or  commerce 
that  is  covered  by  the  conspiracy.  It  is  sufficient 
that  it  is  interstate  trade  or  commerce.  If  two 
or  more  persons  in  no  way  interested  in  a  patent 
were  to  conspire  in  restraint  of  the  interstate 
trade  or  commerce  of  an  infringer,  no  one  would 
contend  that  the  conspiracy  was  not  covered  by 
the  statute.  No  more  is  it  open  to  contend  that 
a  conspiracy  by  a  patentee  and  another,  or  by  the 
officers  and  agents  of  a  patentee  in  his  interest, 
to  restrain  the  interstate  trade  or  commerce  of  an 
infringer,  is  not  within  the  statute.  The  intent 
of  the  statute  was  to  sweep  away  all  conspiracies 
in  restraint  of  such  trade  or  commerce,  whatever 
their  character  may  be.  The  statute  respects 
the  monopoly  of  the  patentee.  .  .  .  But  the 
right  to  conspire  with  another  or  others  in  his 
interest  in  restraint  of  the  interstate  trade  or  com- 
merce covered  by  his  patent  is  not  one  of  the 


Scope  of  Patent  Protection        135 

rights  conferred  thereby,  and  such  a  conspiracy 
is  within  the  statute "  (italics  added). 

PATENT    RIGHTS    NO    LICENSE    AGAINST     POSITIVE 
PROHIBITIONS 

There  is  a  good  deal  of  very  hazy  thought  on  the 
subject  of  the  rights  conferred  by  the  patent  law, 
largely  arising  from  the  fact  that  the  law  itself 
provides  for  a  legal  monopoly.  But  the  monopoly 
conferred  by  the  patent  law  is  a  definite  and 
limited  monopoly  which  includes  only  the  right  to 
prevent  others  from  making,  using,  or  vending  the 
particular  invention  which  is  covered  by  the  patent. 
Further,  the  term  of  the  monopoly  is  limited  to  a 
period  of  seventeen  years.  Any  attempt  to  extend 
the  monopoly  to  other  things  which  are  not  a  part 
of  the  invention  that  the  patent  covers,  or  to  make 
the  monopoly  effective  after  the  expiration  of 
the  seventeen-year  term,  falls  outside  the  domain 
covered  by  the  patent  law.  When  such  attempts 
happen  to  run  counter  to  the  provisions  of  the 
anti-trust  laws — or  any  other  laws,  for  that  mat- 
ter— ^it  is  quite  useless  to  appeal  to  the  patent 
law  for  protection.  The  patent  law  will  not 
protect  such  acts  as  are  entirely  outside  its  scope 
any  more  than  the  laws  of  Canada  will  protect 


136  Business  Competition 

the  merchant  who  does  business  in  Oswego,  N.  Y. 
Sometimes  it  is  not  easy  to  tell  whether  a  given 
act  falls  under  the  protection  of  the  patent  law 
or  remains  entirely  outside  it,  but  it  is  a  task 
which  the  courts  are  quite  ready  to  undertake. 
The  Sanatogen  case,  for  example,  was  carried 
all  the  way  to  the  Supreme  Court  of  the  United 
States  before  it  was  definitely  decided  that  the 
patent  monopoly  could  not  be  extended  by  a  mere 
notice  on  the  package  so  as  to  protect  the  price  of 
the  goods  after  they  had  passed  out  of  the  manu- 
facturer's control. 

While  there  is  difficulty  in  drawing  the  line 
where  the  patent  monopoly  ends  in  any  given  case, 
this  much  may  be  set  down  as  a  general  principle : 
The  possession  of  a  patent  is  no  justification  for 
acts  which  are  not  provided  for  in  the  patent  law 
or  are  not  necessary  for  the  protection  of  the 
rights  of  the  patentee. 

Let  us  examine  some  specific  instances  of  the 
use  of  patents  wliich  have  been  condemned  by 
the  Government  and  the  courts.  In  the  Bath-tub 
case,  for  example,  a  combination  of  manufacturers 
and  jobbers  of  plumbing  supplies  was  based  upon 
a  system  of  licenses  to  use  a  patented  tool  which 
was  of  some  importance  at  certain  stages  in  the 


Scope  of  Patent  Protection        137 

production  of  enamelled  ware.  In  order  to  obtain 
a  license  to  use  the  patented  tool  in  question, 
manufacturers  were  obliged  to  subscribe  to  a 
license  agreement  which  provided,  among  other 
things,  that  they  would  deal  only  with  such 
jobbers  as  entered  the  combination.  The  jobbers, 
in  turn,  were  obliged  to  agree  to  deal  exclusively 
in  the  products  of  licensed  manufacturers,  if  they 
wished  a  license  to  sell  any  goods  which  were  made 
with  the  help  of  the  patented  tool.  This  structure, 
so  carefully  erected  under  the  ostensible  protection 
of  the  patent  law,  was  dismantled  by  the  Supreme 
Court  of  the  United  States  in  a  careful  decision 
which  was  handed  down  in  19 12.  In  the  course 
of  its  opinion,  the  court  said: 

"Before  the  agreements  the  manufacturers  of 
enamelled  ware  were  independent  and  competi- 
tive. By  the  agreements  they  were  combined, 
subjected  themselves  to  certain  rules  and  regula- 
tions, among  others  not  to  sell  their  product  to 
the  jobbers  except  at  a  price  fixed  not  by  trade 
and  competitive  conditions  but  by  the  decision 
of  the  committee  of  six  of  their  number,  and 
zones  of  sales  were  created.  And  the  jobbers 
were  brought  into  the  combination  and  made  its 
subjection  complete  and  its  purpose  successful. 


138  Business  Competition 

Unless  they  entered  the  combination  they  could 
obtain  no  enamelled  ware  from  any  manufacturer 
who  was  in  the  combination,  and  the  condition 
of  entry  was  not  to  resell  to  plumbers  except  at  the 
prices  determined  by  the  manufacturers.  The 
trade  was,  therefore,  practically  controlled  from 
producer  to  consumer  and  the  potency  of  the 
scheme  was  established  by  the  co-operation  of 
85  per  cent,  of  the  manufacturers  and  their  fidelity 
to  it  was  secured  not  only  by  trade  advantages, 
but  by  what  was  practically  a  pecuniary  penalty, 
not  inaptly  termed  in  the  argument  *cash  bail.' 
The  royalty  for  each  furnace  was  $5.00,  80  per 
cent,  of  which  was  to  be  returned  if  the  agreement 
was  faithfully  observed ;  it  was  to  be  '  forfeited  as 
a  penalty'  if  the  agreement  was  violated.  And 
for  faithful  observance  of  their  engagements  the 
jobbers,  too,  were  entitled  to  rebates  from  their 
purchases.  It  is  testified  that  90  per  cent,  of  the 
jobbers  in  number  and  more  than  90  per  cent,  in 
purchasing  power  joined  the  combination.  The 
agreements  clearly,  therefore,  transcended  what 
was  necessary  to  protect  the  use  of  the  patent  or 
the  monopoly  which  the  law  conferred  upon 
it.  .  .  . 

"The  agreements  in  the  case  at  bar  combined 


Scope  of  Patent  Protection        139 

the  manufacturers  and  jobbers  of  enamelled  ware 
very  much  to  the  same  purpose  and  results  as  the 
association  of  manufacturers  and  dealers  in  tiles 
combined  them  in  Montague  &  Co.  vs.  Lowry 
.  .  .  which  combination  was  condemned  by 
this  court  as  offending  the  Sherman  law.  The 
added  element  of  the  patent  in  the  case  at  bar 
cannot  confer  immimity  from  a  like  condem- 
nation for  the  reasons  we  have  stated.  And  this 
we  say  without  entering  into  the  consideration  of 
the  distinction  of  rights  for  which  the  Govern- 
ment contends  between  a  patented  article  and  a 
patented  tool  used  in  the  manufacture  of  an 
unpatented  article.  Rights  conferred  by  patents 
are  indeed  very  definite  and  extensive,  but  they 
do  not  give  any  more  than  other  rights  a  universal 
license  against  positive  prohibitions.  The  Sher- 
man law  is  a  limitation  of  rights,  rights  which  may 
be  pushed  to  evil  consequences  and  therefore 
restrained. 

*^This  court  has  had  occasion  in  a  number  of 
cases  to  declare  its  principle.  Two  of  those  cases 
we  have  cited.  The  others  it  is  not  necessary  to 
review  or  to  quote  from,  except  to  say  that  in 
the  very  latest  of  them  the  comprehensive  and 
thorough  character  of  the  law  is  demonstrated  and 


140  Business  Competition 

its  sufficiency  to  prevent  evasions  of  its  policy 
'by  resort  to  any  disguise  or  subterfuge  of 
form,'  or  the  escape  of  its  prohibitions  *by 
any  indirection.*  United  States  vs.  American 
Tobacco  Co.  .  .  .  Nor  can  they  be  evaded  by 
good  motives.  The  law  is  its  own  measure  of 
right  and  wrong,  of  what  it  permits  or  forbids, 
and  the  judgment  of  the  courts  cannot  be  set  up 
against  it  in  a  supposed  accommodation  of  its 
policy  with  the  good  intention  of  parties,  and,  it 
may  be,  of  some  good  results." 

WHERE  IS  THE  DIVIDING  LINE? 

The  principle  that  is  laid  down  by  the  Supreme 
Court  in  the  opinion  quoted  from  above  has  been 
repeatedly  upheld.  Any  agreement  which  at- 
tempts to  do  more  than  is  actually  necessary  to 
protect  the  use  of  the  patent  is  likely  to  be  ex- 
amined in  the  light  of  the  anti-trust  laws,  and  when 
that  happens  the  patent  law  is  no  protection. 
Such  was  the  situation  in  the  recently  decided  suit 
in  the  United  States  District  Court  at  Philadelphia 
against  some  motion-picture  patentees.  In  that 
case  the  combination  actually  controlled  a  large 
number  of  the  basic  patents  of  the  industry,  and  a 
holding  company  was  formed,  for  the  sole  purpose 


Scope  of  Patent  Protection        141 

of  owning  the  patents  and  issuing  licenses  for 
their  use.  But  when  the  holding  company  ap- 
parently went  beyond  the  rights  conferred  by  the 
patent  law  in  restraining  distributors  from  handling 
motion-picture  supplies  other  than  those  covered 
by  the  patents,  on  the  threat  of  withdrawing  the 
patented  goods  entirely,  the  anti-trust  act  was 
successfully  invoked.  The  court  cites  the  Bath- 
tub case  with  approval,  and  goes  on  to  say : 

"We  would  feel  constrained,  on  the  authority 
of  this  case  alone,  to  find  that  the  agreements  and 
acts  of  the  defendants  in  the  present  case  went 
far  beyond  what  was  necessary  to  protect  the 
use  of  the  patents  or  the  monopoly  which  went 
with  them,  and  that  the  end  and  result,  which 
would  be  expected  to  be  and  was  accomplished, 
was  the  restraint  of  trade  condemned  by  law." 

Just  how  far,  then,  is  it  safe  for  a  manufacturer 
to  go  in  the  direction  of  attempted  control  of  the 
distribution  and  sale  of  his  patented  goods? 
That  is  a  question  which  is  not  easily  answered 
authoritatively,  for  here,  as  always,  the  question 
of  intent  plays  so  large  a  part  in  the  final  deter- 
mination of  any  specific  case.  Two  very  recent 
cases  will  illustrate  the  point  I  am  trying  to  make: 
the  case  of  a  graphophone  manufacturer  against  a 


142  Business  Competition 

department  store,  decided  in  September,  1 91 5,  and 
the  case  of  the  Ford  Motor  Company  against  a  sales 
company,  which  was  decided  in  December,  1 914. 

These  were  cases  involving  the  validity  of  cer- 
tain contracts  which  provided,  among  other  things, 
that  a  resale  price  specified  by  the  manufacturers 
should  be  maintained  by  the  dealers.  In  the 
Graphophone  case  the  contract  as  respecting  the 
point  at  issue  was  upheld ;  in  the  Ford  case  it  was 
declared  invalid.  Both  cases  involved  this  ques- 
tion: Was  it  the  intent  of  the  manufacturer  to 
part  with  his  exclusive  right  to  sell  within  certain 
limits,  or  did  he  merely  part  with  the  title  to  the 
goods  and  then  attempt  to  exercise  control  over 
them?  Granted  that  the  patentee  possessed 
the  exclusive  right  to  sell;  was  he  sharing  that 
right  with  someone  else,  or  was  he  exercising  it  to 
the  full  himself,  and  at  the  same  time  trying  to 
restrain  the  common-law  rights  of  somebody  else? 
That  may  all  sound  like  a  distinction  without  a 
difference,  but  the  courts  do  not  regard  it  in  that 
light.  Let  us  examine  opinion  in  the  Ford  case 
of  Judge  Hollister  of  the  United  States  District 
Court  at  Cincinnati. 

"For  the  purposes  of  this  case,"  said  Judge 
Hollister,  "it  may  be  assumed  that  if  the  contract 


Scope  of  Patent  Protection        143 

partakes  of  the  quality  of  a  sale  of  the  exclusive 
right  to  sell,  or  of  a  license  to  sell,  it  is  a  good 
contract  which  the  complaint  may  legally  enter 
into  with  its  dealers,  and,  under  the  facts  proved 
in  this  case,  an  injunction  must  issue  against  the 
defendants.  But  if,  under  the  terms  of  the  con- 
tract, the  complainant  has  sold  the  automobiles 
made  by  it  and  delivered  the  same  to  its  dealers, 
passing  the  title  upon  receipt  of  the  contract  price, 
then,  under  the  decisions  of  the  Supreme  Court 
and  on  principle,  the  conclusion,  in  my  judgment, 
must  be  that  by  such  sale  the  complainant  has 
exercised  its  exclusive  right  to  sell,  so  far  as 
the  particular  commodity  sold  is  concerned,  and 
cannot  legally  fix  the  price  at  which  the  dealer 
shall  resell.  .  ,  . 

"This  contract  does  not  give  the  vendee  the 
right  to  sell.  It  sells  to  him  the  article,  and  at- 
tempts to  give  him  the  right  to  resell.  He  buys. 
The  manufacturer-patentee  sells  the  product  to 
him,  and  then  seeks  to  control  the  price  at  which 
he  shall  resell.  If,  upon  payment  by  the  dealer 
of  the  purchase  price,  the  "title  of  the  machine 
passes  to  him,  how  can  it  be  taken  away  because 
the  user,  to  whom  the  dealer  has  sold,  has  paid  a 
less  price  than  the  list  price?  .  .  . 


144  Business  Competition 

"When  the  complainant  sold  an  automobile 
under  one  of  these  contracts,  and  received  the  price, 
the  title  passed  to  the  purchaser,  and  no  sale  by 
the  purchaser  to  another  could  cause  a  reverter 
of  the  title  to  the  complainant ;  for,  in  the  complete 
exercise  of  his  right  to  sell,  he  sold,  and  the  subject 
of  sale  passed  without  the  limits  of  the  monopoly." 

In  the  Graphophone  case,  however,  Judge 
Geiger,  of  the  United  States  District  Court  at 
Chicago,  came  to  a  different  conclusion. 

"Grant,"  he  said,  "that  a  patentee  cannot,  by 
a  mere  notice,  burden  an  article  during  the  life  of 
the  patent  with  a  resale  price  restriction,  that  he 
cannot  make  a  notice  attached  to  the  article 
discharge  the  function  of  a  'covenant  running  with 
the  land, '  as  in  real  estate  sales,  and  that  when  he 
sells y  he  sells,  we  still  have  the  question:  How 
effectively  can  he  and  his  vendee  bargain  re- 
specting the  exercise  of  his  exclusive  right  of 
sale?  If  it  be  the  law  that  he  cannot  make  any 
bargain  with  his  vendee  which  involves  price 
restriction,  then,  of  course,  in  that  respect  he  is 
on  competitive,  and  not  on  monopolistic,  ground. 
He  is  in  the  position  where  he  may  rightfully 
withhold  the  manufacture,  use,  and  sale  from 
the  whole  pubHc,  and   yet,   when   he   proceeds 


Scope  of  Patent  Protection        145 

to  sell,  must  submit  to  the  very  policy  which 
the  public,  in  granting  him  the  monopoly,  has 
surrendered  to  him.  .  .  . 

"In  view  of  the  language  in  Bauer  vs.  O'Donnell 
[the  Sanatogen  case],  which  discloses  so  clear  a 
purpose  to  limit  it  to  the  precise  facts,  it  is  my 
judgment  that  it  does  not,  and  was  not  intended  to, 
overrule  the  other  cases  which  seem  so  firmly  to 
have  established  the  general  proposition  upon 
which  the  sufficiency  of  the  complaint  in  the 
present  case  depends.  In  other  words,  the  com- 
plaint shows  a  contract  which,  against  the  de- 
fendant, as  a  purchaser  from  the  patentee,  is 
valid  and  enforceable." 

PATENT  RIGHTS  STILL  HAVE  ADAPTABLE  USES 

Now  it  is  apparent  from  the  decisions  just 
quoted  that  there  are  certain  limits  within  which 
the  coin-ts  will  uphold  attempts  by  a  patentee  to 
share  his  exclusive  rights  with  others,  but  that 
there  is  a  point  beyond  which  such  an  extension 
of  patent  rights  cannot  be  carried.  Two  leading 
cases  decided  by  the  Supreme  Court  tend  to 
establish  the  same  thing:  the  Bath-tub  case  which 
I  have  quoted  extensively  above,  and  the  Creamery 
Package  case  which  was  decided  two  months  later. 

xo 


146  Business  Competition 

This  last-named  case  involved  a  very  complicated 
series  of  contracts  between  several  different  con- 
cerns relating  to  the  use  and  sale  of  patented 
butter-making  machinery.  After  summarizing  the 
evidence  at  considerable  length,  Mr.  Justice  Mc- 
Kenna  summed  up  the  conclusion  of  the  court  in 
the  following  language: 

*'The  Owatonna  Company  did  nothing  more 
in  its  contract  with  the  Creamery  Package  Manu- 
facturing Company  than  to  make  that  company 
its  exclusive  sales  agent,  and  this  was  no  violation 
of  law.  Both  contracts  had  natural  and  adequate 
legal  inducements  and  conveyed  rights  that  could 
under  the  law  be  conveyed,  and,  as  a  necessary 
incident  to  the  conveyance,  one  only  of  the  parties 
could  thereafter  exercise  them.  It  may  be  that 
the  Disbrow  Company  was  to  an  extent  in  com- 
petition with  the  Owatonna  Company,  but  it 
was  a  competition  in  part,  at  least,  which,  it  was 
contended,  was  illegally  conducted  against  rights 
which  had  been  transferred  in  1893.  But,  be 
that  as  it  may,  we  repeat,  patent  rights  may  be 
conveyed  partially  or  entirely,  arid  the  monopoly 
of  use,  of  manufacture,  or  of  sale  is  not  one  con- 
demned by  law." 

Comparing  the  conclusions  in  the  Creamery 


Scope  of  Patent  Protection        147 

Package  case  with  those  in  the  Bath-tub  case,  it 
appears  that  the  real  point  at  issue  is  the  result 
which  the  contracts  are  meant  to  effect,  taking 
into  consideration  all  of  the  surrounding  circum- 
stances. Thus  the  Supreme  Court  has  apparently 
declared  that  patent  rights  may  be  conveyed 
partially  or  entirely,  when  it  does  not  appear  that 
it  is  done  for  the  purpose  of  restraining  competition 
or  effecting  a  monopoly  which  shall  extend  bej^ond 
the  limits  of  the  legal  monopoly  conferred  in  the 
patent. 

Take,  for  instance,  the  Talking  Machine  case. 
There  a  talking  machine  manufacturer  marketed 
its  patented  machines  under  a  plan  by  which,  in 
consideration  of  a  *' royalty,"  it  granted  only 
the  "right  to  use"  the  machine,  though  it  provided 
that,  if  all  the  conditions  attached  to  this  "right 
to  use"  were  complied  with,  the  user  should  be- 
come the  owner  of  the  machine  upon  the  expira- 
tion of  the  patent.  Under  this  plan,  distributors 
and  dealers  had  the  "right  to  use"  the  machine 
only  to  the  extent  of  demonstrating  it,  and  in 
turn  granting  to  such  members  of  the  public  only 
as  paid  the  stipulated  "royalty"  a  non-assignable 
"right  to  use"  the  machine.  The  District  Court, 
in  1915,  held  that  this  "royalty"  was  really  only  a 


148  Business  Competition 

resale  price,  and  that  this  "right  to  use"  was  in 
legal  effect  simply  a  sale  of  the  machine;  and  the 
court  declined  to  enforce  the  condition  for  pay- 
ment of  the  stipulated  "royalty'*  attached  to  this 
"right  to  use,"  on  the  ground  that  "the  real 
purpose  of  the  license  is  obviously  to  maintain  the 
market  for  the  talking  machines  at  the  present 
royalty."  But  the  Circuit  Court  of  Appeals,  in 
1 91 6,  reversed  this  decision,  and  held  that  this 
arrangement  was  valid  and  enforceable  as  a  proper 
exercise  of  the  manufacturer's  patent  rights. 

Like  other  kinds  of  property,  patent  rights  can 
be  combined  in  the  interest  of  efficiency.  Thus  a 
combination — according  to  the  Government — 
of  a  concern  manufacturing  60  per  cent,  of  all  the 
lasting  machines  made  in  the  coimtry  with  two 
other  concerns,  one  manufacturing  80  per  cent,  of 
all  the  welt-sewing  machines  and  outsole-stitching 
machines  and  10  per  cent,  of  all  the  lasting  machines 
and  the  other  manufacttiring  70  per  cent,  of  all 
the  heeling  machines  and  80  per  cent,  of  all  the' 
metallic  fastening  machines  made  in  the  country 
was  held  by  the  Supreme  Court,  in  1913,  to  be 
lawful  under  the  anti-trust  act. 

"On  the  face  of  it,"  said  the  Supreme  Court, 
"  the   combination   was   simply   an   effort  after 


Scope  of  Patent  Protection        149 

greater  efficiency.  The  business  of  the  several 
groups  that  combined,  as  it  existed  before  the 
combination,  is  assumed  to  have  been  legal.  The 
machines  are  patented,  maldng  them  is  a  monopoly 
in  any  case,  the  exclusion  of  competitors  from  the 
use  of  them  is  of  the  very  essence  of  the  right 
conferred  by  the  patents.  .  .  .  We  can  see  no 
greater  objection  to  one  corporation  manufactiu*- 
ing  70  per  cent,  of  three  non-competing  groups  of 
patented  machines  collectively  used  for  making  a 
single  product  than  to  three  corporations  making 
the  same  proportion  of  one  group  each.  The 
disintegration  aimed  at  by  the  statute  does  not 
extend  to  reducing  all  manufacture  to  isolated 
units  of  the  lowest  degree.  It  is  as  lawful  for  one 
corporation  to  make  every  part  of  a  steam  engine 
and  to  put  the  machine  together  as  it  would  be  for 
one  to  make  the  boilers  and  another  to  make  the 
wheels." 

The  system  by  which  this  shoe  machinery  combi- 
nation allowed  specially  favourable  terms  to  lessees 
who  used  this  shoe  machinery  in  groups  was  de- 
cided by  the  District  Court,  in  191 5,  to  be  law- 
ful under  the  anti-trust  act  for  substantially  the 
same  reasons  just  quoted  from  the  Supreme  Court. 
How  the  patent  law  creates  such  a  "difference 


ISO  Business  Competition 

between  the  commercial  situation  relating  to 
patented  articles  and  that  relating  to  articles  of 
general  production"  that  the  anti-trust  act  must 
recognize  and  allow  for  it  was  explained  in  this 
decision. 

"The  inventor  seeks/*  said  the  court,  "to  dis- 
place by  invention  inferior  methods,  and  such 
displacement  is  encouraged  by  giving  to  the 
patentee  a  free  field  for  his  invention  and  by  giving 
him  the  right  to  offer  it  upon  such  terms  as  he 
may  induce  the  public  to  accept.  During  the 
period  of  monopoly  he  may  establish  a  goodwill 
which  will  give  him  after  the  expiration  of  his 
patents  a  formidable  advantage  in  competition 
over  imitative  manufacturers.  Frequently  this 
goodwill  and  the  development  of  his  business 
may  be  such  as  to  practically  and  lawfully  exclude 
competition  after  the  expiration  of  his  patents. 
.  .  .  The  enterprise  of  the  defendants  in  develop- 
ing and  occupying  a  field  in  this  way  rendered  it 
impossible,  of  course,  for  any  subsequent  organiza- 
tion to  have  the  advantages  of  an  unoccupied 
field.  ...  To  say  that  this  is  due,  in  any  sub- 
stantial degree,  to  the  fact  that  its  leases  run 
beyond  the  terms  of  patents,  or  because  of  the 
exclusive  use,  prohibitive,  or  cancellation  clauses, 


Scope  of  Patent  Protection        151 

rests  largely,  if  not  entirely,  upon  assumption. 
.  .  .  The  clauses  objected  to  are  all  subordinate 
and  auxiliary  to  maintaining  rights,  which  un- 
questionably belong  to  the  defendants,  to  charge 
their  own  prices  and  to  choose  as  customers  those 
who  will  pay  those  prices/* 

WARNING  NOTICES   OF  INFRINGEMENT  SUITS 

The  Cash  Register  case,  we  have  seen,  illustrates 
the  dangers  which  sometimes  attend  the  sending 
of  warning  notices  of  infringement  suits,  and  the 
use  by  salesmen  of  information  concerning  in- 
fringement suits.  In  the  Creamery  Package 
case,  on  the  other  hand,  Justice  McKenna  said: 
*' Patents  would  be  of  little  value  if  infringers 
of  them  could  not  be  notified  of  the  con- 
sequences of  infringement  or  proceeded  against 
in  the  courts.  Such  action,  considered  by 
itself,  cannot  be  said  to  be  illegal."  It  is 
important,  however,  to  note  the  qualification  in 
the  words  "considered  by  itself.'*  Here  once 
more  we  meet  our  old  friend,  the  thing  which  is 
perfectly  legal  in  itself,  yet  which  may  be  an 
important  step  in  the  proof  of  illegal  restraint  of 
trade  when  considered  with  all  the  surrounding 
circumstances. 


152  Business  Competition 

The  question  as  to  the  legality  of  threats  of 
infringement  suits,  the  publication  of  warning 
notices  to  the  trade,  and  the  use  of  alleged  infringe- 
ment— or,  f©r  that  matter,  adjudicated  infringe- 
ment— as  a  competitive  argument,  has  been  before 
the  courts  a  great  many  times.  Sometimes  that 
question  is  the  whole  point  at  issue,  and  some- 
times it  is  only  one  step  in  a  complicated  series 
of  competitive  acts.  We  may  briefly  examine 
two  typical  cases. 

The  first  case,  decided  by  the  District  Court  at 
Milwaukee  in  December,  1913,  involved  two 
underwear  manufacturers.  One  company  owned 
certain  patents  for  closed-crotch  union  suits  which 
were  in  litigation.  By  an  advertising  campaign, 
rather  than  by  resort  to  the  courts,  this  com- 
pany was  vigorously  defending  what  it  believed 
were  its  rights.  It  sent  out  notices  through  the 
mails  to  the  trade,  warning  dealers  against  selling 
the  garments  of  certain  manufacturers,  which, 
it  alleged,  were  infringing  its  patents,  it  published 
substantially  the  same  warning  notices  in  its  trade- 
paper  advertisements,  and  it  instructed  its  sales 
force  to  use  similar  arguments  in  talks  with  dealers. 
The  other  company,  one  of  the  alleged  infringing 
manufacturers,  brought  suit   for   an  injunction, 


Scope  of  Patent  Protection        153 

on  the  ground  that  such  tactics  were  not  essential 
to  the  protection  of  the  patents,  but,  on  the 
contrary,  were  a  means  of  intimidating  the  trade 
and  wrongfully  restraining  competition.  The 
coin-t  granted  the  injunction,  and  restrained  the 
first  company  from  continuing  the  practice. 

The  other  case  arose  out  of  the  famous  Harrow 
litigation.  This  case  was  decided  by  the  United 
States  Circuit  Court  of  Appeals,  in  1903,  and  is 
worth  quoting  also  because  it  points  out  one  of  the 
possible  sources  of  danger  to  patent  owners  who 
do  not  manufacture  the  goods,  but  whose  sole 
business  is  the  issuing  of  licenses  to  others.  The 
Circuit  Coiurt  of  Appeals  said: 

**  Undoubtedly  the  owner  of  a  patent  is  acting 
within  his  rights  in  notifying  infringers  of  his 
claims  and  threatening  them  with  litigation  if 
they  continue  to  disregard  them,  nor  does  he 
transcend  his  rights  when,  the  infringer  being  a 
manufacturer,  he  sends  such  notices  to  the 
manufacturer's  customers,  if  he  does  so  in  good 
faith,  believing  his  claims  to  be  valid,  and  in  an 
honest  effort  to  protect  them  from  invasion.  .  .  . 

"When  the  manufacturer  is  financially  responsi- 
ble, is  accessible,  and  his  infringements  readily 
provable,  and  when  the  patent  owner  is  financially 


154  Business  Competition 

able,  and  is  one  who  makes  it  his  sole  businesi 
grant  Hcenses,  and  is  under  a  duty  to  his  licensees 
to  prosecute  extensive  infringers,  the  sending  of 
such  circulars  to  customers  would  seem  to  be 
merely  a  preliminary  or  cumulative  measure,  and 
the  bringing  of  an  infringement  action  the  para- 
mount and  imperative  proceeding.  As,  ordinarily, 
the  patent  owner  would  be  prompt  and  zealous  to 
assert  his  claims,  if  he  halts  and  purposely  pro- 
crastinates, and  attempts  to  effect  by  threats  and 
manifestoes  that  which  he  can  compel  by  the 
strong  hand  of  the  law,  a  strong  inference  arises 
that  he  has  not  any  real  confidence  in  his  pre- 
tensions. This  inference  becomes  irresistible  if  he 
refuses  to  bring  suit  during  a  considerable  period 
of  time,  when  the  alleged  infringement  is  open, 
notorious,  and  defiant,  and  so  extensive  as  to 
threaten  destruction  to  his  alleged  exclusive  rights. 
"The  indicia  of  bad  faith  are  persuasive  in  the 
present  case.  It  is  impossible  to  read  the  commu- 
nications warning  the  complainant's  customers 
against  selling  its  harrows,  with  which  the  defend- 
ant seems  to  have  flooded  the  country,  without 
being  led  to  believe  that  they  were  inspired  by 
a  purpose  to  intimidate  the  complainant's  cus- 
tomers and  coerce  the  complainant,  by  injuring  its 


Scope  of  Patent  Protection        155 

business,  into  becoming  a  licensee  of  the  defendant. 
In  view  of  its  failure  to  bring  an  infringement 
action,  under  the  circumstances  which  made  an 
action  practically  compulsory,  the  defendant 
cannot  shelter  itself  behind  the  theory  that  its 
circulars  and  letters  were  merely  legitimate  notices 
of  its  rights.  We  are  satisfied  that  they  were 
sent,  not  for  the  purposes  of  self -protection,  but  in 
execution  of  the  defendant's  threat  to  stop  the 
complainant  from  building  harrows  by  other 
means  than  legal  remedies.'* 


CHAPTER  VII 


SOME  **TYING-C0NTRACT"  TRAPS 


^  If  there  is  one  point,  more  than  another,  at 
which  the  average  business  man  becomes  certain 
that  the  anti-trust  laws  do  not  apply  to  hinij  it  is 
when  we  begin  to  discuss  the  subject  of  "tying- 
con tracts."  It  is  the  common  view  that  a  '*tying- 
contract'*  must  be  the  ingenious  invention  of 
super-subtle  corporations  of  great  wealth  and 
immense  power,  and  that  Section  3  of  the  Clayton 
Act^  was  written  for  the  direct  purpose  of  getting 
at  them.  That  purpose  is  one  which  the  ordinary 
small  business  man  is  willing  enough  to  applaud, 
and  he  generally  gives  no  further  thought  to  the 
subject  of  **tying-contracts,  *'  for,  as  he  always 
says,  *'We  don't  use  them  in  our  business." 

Now  the  probabilities  are  great  that  Mr.  Busi- 
ness Man,  having  brushed  aside  Section  3  of  the 

*  This  section  has  been  quoted  in  full  In  a  footnote  to  a  pre- 
vious chapter  upon  "exclusive-dealer"  agreements. 


Some  **Tying-Contract''  Traps    157 

Clayton  Act  so  lightly,  will  put  on  his  hat  forthwith 
and  proceed  directly  to  the  office  of  his  best  and 
largest  customer  for  the  purpose  of  closing  his 
best  and  largest  contract  for  the  year.  After 
the  usual  amount  of  jockeying  over  prices,  terms, 
and  delivery  dates,  an  order  is  signed  in  duplicate, 
and  Mr.  Business  Man  emerges  with  his  copy 
safely  buttoned  up  in  his  pocket.  ''Tying-con- 
tract".?  Not  a  bit  of  it!  Merely  an  order  from 
the  customer  for  a  year's  supply  of  a  certain  material 
or  equipment  at  a  certain  price.  Mr.  Business 
Man  agrees  to  furnish  all  the  material  his  customer 
will  need  for  a  year,  with  a  certain  minimum 
quantity  guaranteed.  It  is  done  every  day; 
railroad  companies  buy  that  way ;  so  do  industrial 
corporations,  institutions,  municipalities,  even 
Uncle  Sam  himself! 

True — but  let  us  examine  Section  3  of  the  Clay- 
ton Act  boiled  down  to  its  lowest  terms.  It  shall 
be  unlawful,  it  says,  to  make  a  contract  of  sale,  or 
fix  a  price,  or  discount  on  or  rebate  from  such 
price,  on  condition  that  the  purchaser  shall  not 
use  or  deal  in  the  goods  oj  a  competitor  of  the  seller ^ 
where  the  effect  may  be  to  substantially  lessen 
competition  or  tend  to  create  a  monopoly  in  any 
line  of  commerce.     Now  if  Mr.  Business  Man's 


158  Business  Competition 

contract  of  sale,  which  prevents  his  customer  from 
dealing  with  a  competitor  for  a  whole  year,  does 
not  "substantially  lessen  competition  or  tend 
to  create  a  monopoly, "  it  is  all  right.  But,  as  I 
have  remarked  before  in  a  previous  chapter, 
nobody  on  earth  knows  exactly  what  those  phrases 
really  mean.  One  thing  is  quite  certain,  however. 
Our  hypothetical  business  man  has  made  a  "t3dng- 
contract"  squarely  within  the  meaning  of  the 
Clayton  Act,  unless  he  is  saved  by  this  quoted 
clause.  As  a  matter  of  fact,  the  vast  majority 
of  business  men  do  make  "tying-contracts,'* 
of  one  kind  or  another,  and  the  only  thing  that 
stands  between  them  and  the  condemnation  of 
the  law  is  the  possibility  that  the  courts  may  put  a 
liberal  construction  upon  the  phrase  "substantially 
lessen  competition  or  tend  to  create  a  monopoly." 

MANY  OTHER  CONTRACTS  IN  THE  SAME  CATEGORY 

Nor  axe  those  contracts  for  a  year's  supply 
the  only  kind  of  "tying-contracts"  that  business 
men  are  in  the  habit  of  making.  There  are,  in 
addition,  *  *  exclusive-dealer ' '  contracts, — already 
discussed  in  a  previous  chapter, — contracts  for  re- 
pair and  spare  parts,  contracts  for  premiums  and 
trading-stamps,  contracts  for  dealers'  helps,  and 


Some  **Tying-Contract"  Traps    159 

a  whole  galaxy  of  contracts  for  the  sale  of  one  line 
of  goods  at  a  certain  price  provided  other  goods 
are  also  purchased.  Many  manufacturers  sell  a 
piece  of  machinery  or  other  equipment  at  a  nomi- 
nal price,  upon  condition  that  the  supplies  or 
material  used  with  the  primary  purchase  shall 
be  purchased  exclusively  from  them.  That  was 
the  situation  in  the  Mimeograph  case  which  was 
decided  by  the  Supreme  Court,  in  1912,  before  the 
Clayton  Act  was  passed.  In  that  case  it  was 
declared  to  be  lawful  for  a  manufacturer  id  sell  a 
patented  machine  on  condition  that  the  purchaser 
of  the  machine  should  use  it  only  with  supplies 
bought  exclusively  from  him.  Some  believe, 
however,  that  the  passage  of  the  Clayton  Act 
has  gone  a  long  way  toward  overruling  the 
decision  in  the  Mimeograph  case.  Indeed  the 
Federal  Trade  Commission  is  now  prosecuting 
the  very  manufacturer  whom  the  Supreme  Court 
upheld  in  the  Mimeograph  case,  and  in  the  prosecu- 
tion is  contending  that  the  very  condition  which 
the  Supreme  Court  there  sustained  has  since  been 
made  unlawful  by  the  passage  of  the  Clayton  Act. 
Cases  under  the  Clayton  Act  are  not  very  plenti- 
ful up  to  date,  but  such  as  have  been  decided 
are  not  reassuring  so  far  as  they  involve  "tying- 


i6o  Business  Competition 

contracts."  One  extremely  suggestive  case  in- 
volved the  use  of  a  patented  button-setting  machine. 
The  points  involved  are  sufficiently  clear  from  the 
decision  of  the  court,  in  which  a  condition  some- 
what similar  to  that  involved  in  the  Mimeograph 
case  was  held  to  be  in  violation  of  the  Clayton  Act. 

**  According  to  the  allegations  of  the  bill  of 
complaint, "  said  the  court,  "plaintiff  is  the  owner 
of  three  patents  for  improvements  in  button- 
setting  machines  and  attachments  thereto »  It  is, 
and  for  several  years  has  been,  manufacturing 
and  leasing  or  licensing  shoe-button-attaching 
machines  constructed  under  its  patents,  and, 
in  so  doing,  is  and  has  been  engaged  in  interstate 
commerce  throughout  the  United  States.  Prior 
to  the  enactment  of  the  Clayton  Anti-Trust  Act, 
so-called,  in  October,  1914,  plaintiff's  machines 
were  loaned  or  leased  to  users,  including  the 
defendant,  on  the  condition  that  only  its  wire 
should  be  used  in  their  operation.  Attached  to 
each  machine  so  loaned  or  leased  was  a  metal 
plate  bearing  the  following  inscription : 

**  *This  machine  is  the  property  of  the  Elliott 
Machine  Company  and  is  loaned  to  and  accepted 
by  the  user  to  use  wire  furnished  under  the  com- 
pany's trade-mark  only.' 


Some  '*Tying-Contract"  Traps    i6i 

**No  other  agreement  than  that  stated  upon  the 
plate  was  made  with  defendant  or  other  users. 
Plaintiff's  wire,  the  use  of  which  was  thus  required, 
was  put  up  in  coils.  Each  coil  contained  a  sujfificient 
amount  of  wire  for  one  thousand  operations  of  the 
machine,  which  was  so  constructed  as  to  lock 
automatically  upon  the  completion  of  each  one 
thousand  operations.  For  that  reason,  a  key 
with  which  to  unlock  the  machine  was  attached 
to  each  coil  of  wire.  The  wire  and  key  were 
furnished  by  plaintiff  to  its  customers  for  about 
eighty-five  cents  per  coil,  which  included  both  the 
price  of  the  wire  and  the  royalty  for  the  use  of  the 
patented  machine  to  fasten  one  thousand  buttons. 

"Since  October,  1914,  plaintiff,  believing  that 
the  further  continuance  and  performance  of  its 
former  contracts  would  be  a  violation  of  Section  3 
of  the  Clayton  Act,  has  notified  the  users  of  its 
machine,  including  defendant,  that  they  will  no 
longer  be  required  to  purchase  or  use  its  wire, 
and  that  a  royalty  of  seventy-five  cents  must  be 
paid  for  the  use  of  each  machine  to  make  one 
thousand  operations  or  to  fasten  one  thousand 
shoe  buttons.  Plaintiff  has  continued  to  manu- 
facture wire,  but  sells  the  same,  without  the  key, 
for  ten  cents  per  coil,  which  is  a  fair  price  for  the 


i62  Business  Competition 

wire  alone  without  any  royalty  for  the  use  of  the 
machine. 

**  Defendant  has  purchased  wire  from  plaintiff's 
agents  at  ten  cents  per  coil  and  has  continued 
to  use  the  patented  machine,  but  has  refused  to  pay 
the  royalty  demanded.  This  suit  is  brought  to 
restrain  further  alleged  infringement  of  plaintiff's 
patents  and  for  the  usual  accounting.  Defendant's 
motion  to  dismiss  is  founded  primarily  upon  the 
claim  that  Section  3  of  the  Clayton  Act  is  not 
retroactive  and  cannot  affect  contracts,  like  the 
one  here  involved,  made  and  entered  into  before 
its  enactment.  .  .  . 

*'The  statute  does  not  in  terms  except  from  its 
operation  any  agreements,  or  contracts,  past, 
present,  or  future,  and,  in  the  absence  of  such 
exception,  it  is  to  be  presumed  that  Congress 
intended  to  prohibit  not  only  the  making  of 
future  contracts,  but  also  the  further  performance 
of  past  contracts  of  the  kind  specified." 

Now,  it  is  evident  from  this  that  the  court 
considered  the  earlier  form  of  contract  a  violation 
of  the  Clayton  Act — in  other  words,  the  court 
believed  that  it  did  ''substantially  lessen  compe- 
tition or  tend  to  create  a  monopoly."  This  con- 
tract-tended to  prevent  competitors  from  selling 


Some  *'Tying-Contract"  Traps    163 

any  wire  to  the  users  of  this  particular  type  of 
machine — not  such  a  terribly  serious  restraint  it 
would  seem,  yet  serious  enough  to  be  held  in 
violation  of  the  Clayton  Act.  And  if  it  substan- 
tially lessens  competition  to  make  a  contract  for  the 
exclusive  supply  of  wire  to  a  particular  button- 
fastening  machine,  what  shall  be  said  of  an  agree- 
ment to  supply  a  railroad  with  all  the  brake-shoes 
that  are  needed  for  a  year?  What  about  an 
exclusive  contract  to  manufacture  letter-boxes 
for  Uncle  Sam's  Post  Office?  What  about  the 
automobile  manufacturer  who  agrees  to  make  a 
certain  kind  of  carburetor  "standard  equipment'* 
for  the  coming  year,  and  thereby  shuts  out  com- 
peting carburetor  manufacturers?  What  about 
the  incandescent  lamp  manufacturer  who  con- 
tracts to  furnish  all  the  lamps  needed  by  a  factory, 
or  an  apartment  house,  or  a  school  building?  If 
those  contracts  "substantially  lessen  competition" 
they  are  illegal,  and  there's  an  end  of  it. 


STATE  LAWS  AGAINST  "  TYING-CONTRACTS  " 


As  a  matter  of  fact,  the  Clayton  Act  does  not 
stand  altogether  by  itself  so  far  as  this  particular 
prohibition  is  concerned.    A  number  of  States 


164  Business  Competition 

have  laws  which  contain  somewhat  similar  pro- 
visions, and  these  laws  have  been  construed  by  the 
courts  at  one  time  or  another.  Many  people 
suppose  that  the  courts  will  construe  the  Clayton 
Act  in  harmony  with  these  decisions  of  the  State 
courts,  and  it  is  therefore  worth  while  to  indicate 
briefly  just  how  drastic  those  decisions  have  been. 
For  example,  a  case  arose,  in  1905,  under  the 
Massachusetts  law  in  which  the  defendant  was  a 
salesman  employed  by  the  Continental  Tobacco 
Company  to  solicit  orders  from  purchasers.  The 
evidence  tended  to  show  that  he  sold  tobacco  to 
purchasers  at  list  prices,  agreeing  to  give  them  a 
trade  discount  of  two  per  cent.,  and,  if  the  bill 
was  paid  within  ten  days,  a  further  cash  discount 
of  two  per  cent.,  and,  if  they  handled  the  plug 
tobaccos  of  the  Continental  Tobacco  Company 
exclusively — that  is,  handled  and  dealt  in  no  plug 
tobacco  made  by  any  manufacturer  other  than  the 
Continental  Tobacco  Company — to  give  them  at 
the  expiration  of  a  stated  period  a  further  amount 
equal  to  six  per  cent,  of  the  amount  of  their  pur- 
chases during  such  period.  The  trial  judge  in- 
structed the  jury  as  follows: 

"Upon  all  the  evidence,  if  you  are  satisfied  that 
the  defendant,  acting  for  the  Continental  Tobacco 


Some  '*Tying-Contract"  Traps    165 

Company,  offered  for^sale  to  the  person'or  concern 
named  in  either  count  of  the  indictment  the 
plug  tobacco  made  by  the  Continental  Tobacco 
Company  upon  more  favourable  terms  if  such  person 
or  concern  should  not  sell  or  deal  in  the  plug  tobacco 
of  any  other  person,  firm,  corporation,  or  association 
of  persons,  it  will  be  your  duty  to  find  the  defendant 
guilty  under  any  such  count." 

Upon  this  instruction  the  defendant  was  con- 
victed of  violating  the  Massachusetts  law.  The 
Massachusetts  Supreme  Court,  however,  held 
that  this  was  too  broad,  and  reversed  the  con- 
viction. In  a  tentative  sort  of  way,  the  court 
intimated  that  if,  "under  the  guise  of  giving  more 
favourable  terms  to  those  who  were  selling  his 
employer's  goods  exclusively,  the  defendant  had 
made  the  price  to  those  who  sold  goods  of  others 
so  high,  in  comparison  with  that  to  those  who  sold 
only  his  employer's  goods,  as  virtually  to  make  it 
prohibitive  to  purchase  except  by  those  who  sold 
his  employer's  goods,  the  case  would  be  very 
different"  (italics  added).  Thereupon,  the  un- 
fortunate defendant  was  promptly  placed  on  trial 
again;  and  after  a  trial  conducted  this  time  along 
the  lines  indicated  by  the  Massachusetts  Supreme 
Court  the  defendant  was  again  convicted,  and 


i66  Business  Competition 

upon  appeal  the  Massachusetts  Supreme  Court 
this  time  sustained  the  conviction. 

Several  years  later,  when  the  United  States 
Commissioner  of  Corporations  reported  upon  the 
American  Tobacco  Company — which  meantime 
had  succeeded  to  the  Continental  Tobacco  Com- 
pany's business — he  found  that  the  company  in 
deference  to  this  decision  had  given  up  the  use 
of  this  arrangement  in  New  England  territory. 
And  when  the  company  was  dissolved,  in  191 1,  in 
the  Government  suit  under  the  an ti- trust  act,  the 
decree  enjoined  the  companies  into  which  it  was 
divided  from  "refusing  to  sell  to  any  jobber  any 
brand  of  any  tobacco  product  manufacttued  by  it, 
except  upon  condition  that  such  jobber  shall  pur- 
chase from  the  vendor  some  other  brand  or  pro- 
duct also  manufactured  and  sold  by  it;  provided, 
however,  that  this  prohibition  shall  not  be  con- 
strued to  apply  to  what  are  known  as  'combi- 
nation orders, '  under  which  some  brand  or  product 
may  be  offered  to  a  jobber  or  dealer  at  a  reduced 
price,  on  condition  that  he  purchase  a  given 
quantity  of  some  other  brand  or  product.'* 

A  harder  case,  that  well  illustrates  the  unex- 
pectedness of  the  "tying-con tract"  trap,  and  the 
mischief  that  it  causes  wherever  it  obtrudes  itself, 


Some  '^Tying-Contract"  Traps    167 

arose,  in  1914,  under  the  Texas  law.    There  the 
parties  entered  into  the  following  agreement : 

**  Dallas,  Texas,  Oct.  30, 1912.    , 

**This  contract  and  agreement,  this  day  entered 
into  by  D.  M.  Jones,  acting  for  the  Texas  Ice  and 
Cold  Storage  Co.,  hereinafter  called  first  party, 
and  H.  C.  Wood,  hereinafter  called  second  party, 
all  of  Dallas,  Texas,  witnesseth:  That  the  first 
party  agrees  to  sell  the  second  party  as  much  as 
six  tons,  or  what  his  trade  may  demand,  of  ice  per 
day,  and  as  much  more  as  the  first  party  is  able  to 
supply,  without  conflicting  with  other  arrange- 
ments, and  the  second  party  agrees  ta  make  all  his 
purchases  from  the  first  party  during  the  term  of 
this  contract,  provided  the  first  party  is  able  to 
furnish  same  as  above  indicated.  The  price  to 
be  paid  for  all  purchases  during  the  term  of  this 
contract,  which  is  one  year  beginning  October 
30,  1912,  is  three  dollars  ($3.00)  per  ton  on  plat- 
form, located  at  2225  Cedar  Springs  St.,  of  first 
party,  unless  the  general  market  price  of  ice  in  the 
city  of  Dallas  goes  below  said  price,  then  in  that 
event,  during  such  time,  the  first  party  agrees 
to  meet  such  price  so  long  as  first  party  operates 
their  plant.     [Here   follow  numerous  provisions 


i68  Business  Competition 

relating  to  what  shall  be  done  in  case  of  closing 
appellee's  factory,  the  quality  of  ice  to  be  fur- 
nished by  appellee,  and  certain  other  mutual  and 
reciprocal  duties  of  both  parties  unnecessary  to 
detail.]    Witness  our  hands  in  duplicate, 

*'H.  C.  Wood, 

"Texas  Ice  and  Cold  Storage  Co." 

Now  study  that  contract  carefully,  and  ask 
yourself  whether  you  have  not  often  entered 
into  just  such  contracts  as  that!  See  the  fairness 
of  it :  Wood"  gets  six  tons  of  ice  a  day  for  a  year 
at  a  fiat  price,  and,  to  the  extent  of  the  Ice  Com- 
pany's ability,  gets  all  his  ice  for  a  season  at  the 
same  price,  and  at  the  same  time  is  absolutely 
protected  against  a  decline  in  the  market,  for  if 
the  price  goes  down  he  pays  only  the  market  price ; 
and  for  all  this  Wood  is  never  obligated  to  take 
more  than  six  tons  of  ice  a  day. 

The  court,  however,  with  the  Texas  law  before 
it,  fastened  upon  the  tell-tale  phrases  "what  his 
trade  may  demand"  and  "agrees  to  make  all  his 
purchases  .  .  .  during  the  term  of  this  contract," 
and  refused  to  enforce  the  contract  in  a  suit 
between  the  parties,  and  held  the  contract  void 
on  the  ground  that  it  "  comes  precisely  within 


Some  **Tying-Contract"  Traps    169 

the  statutory  definition  of  the  acts  denounced 
thereby,  since  the  declared  purpose  oj  the  contract 
is  to  prevent  the  appellant  jrom  buying  ice  from 
any  other  person,  firm,  corporation,  or  association" 
(italics  added). 

CONFLICTING  DECISIONS  AND  HARD  CASES 

Manufacturers  of  dress  patterns  have  had 
varying  vicissitudes  in  their  encounters  with 
various  anti-trust  laws  dealing  with  "tying-con- 
tracts."  In  Massachusetts  the  Supreme  Court 
held,  in  1909,  that  the  Massachusetts  law,  under 
which  the  salesman  of  the  Continental  Tobacco 
Company  was  convicted  as  already  described, 
did  not  invalidate  a  contract  between  the  manu- 
facturer and  a  dealer  by  which  the  dealer  bought 
dress  patterns  from  the  manufacturer  and  retailed 
them  in  his  store,  although  the  contract  expressly 
required  the  dealer  "not  to  sell  or  permit  to  be 
sold  on  the  premises  .  .  .  during  the  term  of  this 
contract  any  other  make  of  patterns."  This 
same  manufacturer  also  had  a  similar  contract 
sustained,  in  19 10,  by  the  Wisconsin  Supreme 
Court  in  the  face  of  the  anti-trust  act  of  that  State, 
although  the  court  there  rested  its  decision  on  the 
narrow  ground  that  the  patterns  were  patented. 


I70  Business  Competition 

In  Texas,  however,  a  similar  contract  was  held, 
in  191 6,  to  be  in  violation  of  the  Texas  law. 

The  trading-stamp  people,  whose  business  is 
vexed  by  unsympathetic  legislation  in  a  number  of 
States,  have  also  had  experience  with  the  "tying- 
contract"  bogey.  A  trading-stamp  concern  oper- 
ating in  Massachusetts  issued  trading-stamps  and 
books  to  dealers  upon  condition  that  the  dealers 
should  not  use  trading-stamps  issued  by  any 
other  concern.  Under  the  Massachusetts  law, 
with  which  we  have  become  familiar,  the  Supreme 
Court  held,  in  191 5,  that  this  arrangement  was 
illegal.  Some  years  before,  in  Texas,  another 
concern  doing  a  trading-stamp  business  succeeded 
in  slipping  through  the  meshes  of  the  Texas  law 
on  the  ground  that  the  Texas  law  related  only  to 
articles  of  merchandise,  produce,  or  commodities, 
and  that  trading-stamps  were  none  of  these  things 
but  only  **  aids  to  commerce  " !  But  this  ingenious 
view  was  not  favoured  by  the  Massachusetts 
court. 

Other  cases  in  State  courts  could  be  cited  to 
show  that  the  construction  of  some  of  these  laws 
leaves  very  little  margin  to  the  maker  of  a  "tying- 
contract."  How  closely  the  United  States  courts 
in  interpreting  the  Clayton  Act  will  follow  the 


Some  *'Tying-Contract"  Traps    171 

lead  of  the  State  courts  in  interpreting  the  State 
statutes  is,  of  course,  problematical,  but  cautious 
lawyers  have  already  begun  to  advise  that  it  is  not 
safe  to  rely  too  confidently  upon  the  saving  grace 
of  the  clauses  "substantially  lessen  competition/* 
and  "tend  to  create  a  monopoly."  Certainly  the 
nonchalance  of  some  of  the  United  States  courts 
in  disposing  of  these  clauses  in  some  of  the  cases 
of  "  tying-contracts "  arising  under  the  Clayton 
Act  is  disquieting  enough  to  warrant  great  caution. 
In  the  Button-setting  case  we  have  already  seen 
that  the  contract  was  declared  to  be  void  under 
this  law  without  so  much  as  a  reference  to  these 
clauses.  In  the  Shoe  Machinery  case,  in  191 5, 
the  court,  in  advance  of  trial  and,  indeed,  before 
the  papers  in  the  case  had  been  served  on  the 
defendants,  granted  at  the  Government's  request 
a  temporary  injunction,  enjoining  the  defendants 
from  enforcing  the  essential  provisions  of  thou- 
sands of  leases  covering  millions  of  dollars  worth 
of  shoe  machinery  in  the  factories  of  hundreds 
of  shoe  manufacturers  scattered  throughout  the 
United  States,  simply  upon  the  allegation  of  the 
Government  that  those  leases  contained  provisions 
that  were  forbidden  by  the  Clayton  Act;  and 
several  days  later,  also  in  advance  of  trial  and  at 


172  Business  Competition 

the  Government's  request,  the  coiirt  continued  this 
injunction  for  the  duration  of  the  stdt  without 
so  much  as  a  syllable  of  discussion  as  to  whether 
the  clauses  "substantially  lessen  competition" 
and  "  tend  to  create  a  monopoly"  had  any  bearing 
on  the  question!  True,  the  Government  decided 
not  to  contest  the  appeal  from  this  injunction, 
and  the  Circuit  Court  of  Appeals  vacated  it  and 
sent  the  suit  before  another  trial  judge  for  future 
proceedings;  but  what  significance,  if  any,  these 
clauses  really  have  was  not  illimiined  by  any  of 
these  rulings. 

See  how  another  court,  in  191 6,  disposed  of 
these  clauses  in  another  case  involving  a  patent 
license:  A  company  owning  patents  covering 
moving-picture  projecting-machines  licensed  a 
manufacturer  to  make  and  sell  these  machines 
with  the  restriction  that  they  be  used  solely  for 
exhibiting  film  containing  patented  inventions 
controlled  by  the  owner  of  the  projecting-machine 
patents.  This  manufacturer  went  ahead,  and 
made  and  sold  these  projecting-machines  in  ac- 
cordance with  his  agreement  with  the  company 
owning  the  patents,  and  attached  to  each  project- 
ing-machine a  plate  containing  this  license  re- 
striction.   Then  the  patent  on  the  film  expired; 


Some  **Tying-Contract*'  Traps    173 

but  the  manufacturer  went  on  just  the  same,  mak- 
ing the  projecting-machines  and  selling  them  with 
this  license  restriction,  and  in  course  of  business 
one  of  them  was  bought  and  leased  to  a  moving- 
picture  exhibitor.  Then  the  Clayton  Act  was 
passed.  Sometime  afterward,  the  company  own- 
ing the  patents  covering  the  projecting-machines 
discovered  that  the  moving-picture  exhibitor 
was  exhibiting  film  of  a  rival  manufacturer  upon 
that  projecting-machine.  Thereupon  it  sued  the 
exhibitor  for  an  injunction  to  stop  him  from 
breaking  this  license  restriction.  Now,  of  course, 
that  license  restriction  was  in  violation  of  the 
Clayton  Act,  unless  the  fact  that  the  projecting- 
machine  had  been  bought  and  leased  before  the 
passage  of  the  law  made  a  difference,  or  unless 
the  court  beHeved  that  it  did  not  "substantially 
lessen  competition  or  tend  to  create  a  monopoly 
in  any  line  of  commerce."  The  court  promptly 
decided  that'  the  date  of  the  purchase-  and  lease 
of  the  projecting-machine  would  not  save  the 
license  restriction,  and  then  took  up  the  other 
point  in  the  case. 

"The  testimony  shows,"  said  the  court,  "that 
the  complainant  has  a  monopoly  under  its  patents 
of  projecting-machines  so  that  if  no  films  not 


174  Business  Competition 

manufactured  by  complainant  can  be  used  upon 
these  machines,  the  complainant  will  obtain  an 
absolute  monopoly  of  the  film  business  in  spite 
of  the  fact  that  its  patent  on  films  has  expired. 
If  the  prohibitions  of  the  Clayton  Act  mean  any- 
thing at  all  this  case  falls  within  them  and  the 
restrictions  as  to  use  of  films  other  than,  com- 
plainant's with  the  projecting  machines  are 
therefore  void." 


PROHIBITION 

Where  does  this  leave  us?  Consider  the  situ- 
ation of  a  sewing-machine  manufacturer,  who 
leases  his  patented  sewing-machine  to  garment- 
makers  under  a  restriction  forbidding  them  to  use 
the  sewing-machines  with  needles  other  than 
those  furnished  by  the  sewing-machine  manu- 
facturer. Special  needles,  manufactured  only 
by  the  sewing-machine  manufacturer,  are  neces- 
sary, let  us  assume,  for  the  satisfactory  running  of 
the  machine.  Ordinary  needles,  such  as  can  be 
purchased  in  the  market  at  a  cheaper  price,  not 
only  impair  the  satisfactory  running  of  the  sewing- 
machine,  but  actually  damage  the  machine  itself. 


Some  *  *  Ty  ing-Contract ' '  Traps    1 75 

Garment-makers  are  notoriously  defective  in 
mechanical  intelligence,  and  irresponsible  so  far 
as  financial  liability  goes,  and  withal  appallingly 
parsimonious;  which  combination  of  traits  insures 
that,  without  some  such  condition  in  the  lease, 
none  of  those  garment-makers  would  use  the 
proper  needles,  and  all  the  machines  in  which  the 
manufacturer's  capital  is  invested  would  soon 
come  back  to  him  ruined,  and  the  loss  would  be 
entirely  his.  Every  consideration  of  business 
sense,  therefore,  would  seem  to  support  the  pro- 
priety of  this  condition.  But  where  does  it  stand 
under  the  Clayton  Act?  f? 

There  is  the  law:  *'It  shall  be  unlawful  .  .  . 
to  lease  .  .  .  machinery  .  .  .  whether  patented 
or  unpatented  ...  on  the  condition,  agreement, 
or  understanding  that  the  lessee  .  .  .  shall  not 
use  .  .  .  supplies  or  other  commodities  of  a  com- 
petitor or  competitors  of  the  lessor  .  .  .  where 
the  effect  of  such  lease  ...  or  such  condition, 
agreement,  or  understanding  may  be  to  substan- 
tially lessen  competition  or  tend  to  create  mo- 
nopoly in  any  line  of  commerce." 

Obviously,  the  makers  of  all  those  inferior 
needles  are  "competitors"  of  the  sewing-machine 
manufacturer,   so  far  as  the  needle  business  is 


176  Business  Competition 

concerned.  And  obviously  the  sewing-machine  is 
leased  on  the  condition  that  their  needles — which 
are  '*suppHes  or  other  commodities"  of  a  com- 
petitor of  the  lessor — shall  not  be  used  on  that 
sewing-machine.  Since  that  is  the  only  way  the  gar- 
ment-maker would  ever  think  of  using  any  needles 
anyway,  isn't  there  a  violation  of  the  Clayton  Act 
right  there?  And  isn't  the  sewing-machine  manu- 
facturer shut  out  from  taking  this  natural  means  of 
insuring  the  preservation  and  satisfactory  opera- 
tion of  all  his  leased  sewing-machines?  He  cer- 
tainly is,  unless  the  courts  can  work  out  some 
meaning  for  ''substantially  lessen  competition" 
and  "tend  to  create  a  monopoly  "  that  will  save  his 
lease. 

Look  a  little  further,  and  see  how  far  these 
prohibitions  of  the  Clayton  Act  carry.  That 
sewing-machine  lease  also  provides  as  a  condition 
of  the  use  of  the  machine  that  no  repair  parts  or 
spare  parts  shall  be  used  upon  the  machine  except 
those  furnished  by  the  sewing-machine  manu- 
facturer. Who  can  dispute  the  reasonableness 
of  this  provision  by  which  the  sewing-machine 
manufacturer  seeks  to  safeguard  his  investment 
in  his  leased  machines?  Turn  back  to  the  law, 
however.    Isn't  a  repair  part  a  ** supply"?    Isn't 


Some  **Tying-Contract"  Traps    177 

a  spare  part  a  '*  commodity  "  ?  If  it  isn't  a  part  of 
the  sewing-machine  that  is  covered  by  the  sewing- 
machine  manufacturer's  patents,  any  pattern- 
maker can  lawfully  duplicate  it,  or  make  and  sell 
something  purporting  to  answer  the  same  purpose. 
This  pattern-maker,  so  far  as  the  repair  and  spare 
part  business  goes,  is  clearly  a  "competitor"  of 
the  sewing-machine  manufacturer.  So  doesn't  it 
follow  that  this  provision,  also,  violates  the  Clay- 
ton Act,  unless  the  courts  can  work  out  some 
meaning  for  "substantially  lessen  competition" 
and  "tend  to  create  a  monopoly"  that  will  save 
this  provision  of  the  lease? 

If  the  courts  would  only  follow  Judge  Hough's 
view  expressed,  in  191 5,  in  the  Cream  of  Wheat 
case,  and  decide  that  "there  is  nothing  in  the 
Clayton  Act  to  compel  or  induce  courts  to  hold 
that  the  trade  restraint  referred  to  by  this  statute 
differs  in  kind,  quality,  or  degree  from  that  now 
held  to  be  meant  by  the  Sherman  Act, "  there  would 
be  no  difficulty.  For  however  competition  in  the 
needle  and  the  repair  and  spare  part  business  may 
be  affected  by  those  provisions  in  the  sewing- 
machine  lease^ — whether  competition  be  lessened 
"substantially"  or  insubstantially — there  is  abun- 
dant authority  for  the  view  that  those  provisions 


178  Business  Competition 

would  not  be  held  to  constitute  a  restraint  of  trade 
within  the  meaning  of  the  Sherman  Act.  But 
the  Government  takes  the  view,  and  in  the  Shoe 
Machinery  case  under  the  Clayton  Act  it  is  now 
contending  with  all  its  might,  that  the  Clayton  Act 
sets  up  a  stricter  standard,  and  forbids  a  much  less 
restraint  of  competition,  than  does  the  Sherman 
Act,  and  in  support  of  that  view  the  Government 
claims  to  derive  great  encouragement  from  the 
decisions  in  the  Button-setting  and  the  Projecting- 
machine  case. 

Now  it  is  hardly  consistent  that  the  Govern- 
ment should  institute  proceedings  against  any 
manuf  actiu^er  on  the  ground  that  he  is  in  the  habit 
of  making  "tying-contracts"  with  his  customers. 
For,  as  I  have  pointed  out,  the  Government  is 
itself  a  party  to  such  contracts  in  connection  with 
almost  everything  it  buys  for  its  own  use.  "Ty- 
ing-contracts "  may,  however,  represent  very 
important  bits  of  evidence  when  taken  in  con- 
nection with  other  acts  in  an  anti-trust  prose- 
cution. Furthermore,  the  passage  of  the  Clayton 
Act  has  multiplied  the  possibilities  of  getting 
into  trouble  through  actions  brought  by  indi- 
viduals who  may  consider  that  they  have  been 
injured. 


Some  ^^Tying-Contract"  Traps    179 

HOW  THE  LAW  MAY  BE  PRACTICALLY  APPLIED 

There  are,  in  fact,  five  ways  by  which  the  Clay- 
ton Act  may  be  invoked  against  business  men. 

First,  the  Government  may  start  an  action 
through  the  Department  of  Justice.  The  probabil- 
ity of  that  is  not  entirely  remote,  even  when  there 
is  involved  only  a  question  of  "tying-contracts.'* 
The  Government  is  now  prosecuting  a  shoe 
machinery  company  on  a  charge  based  wholly 
upon  a  system  of  leases  which  are  alleged  to  be  in 
violation  of  'Section  3  of  the  Clayton  Act;  and 
*'tying-contracts"  have  figured  prominently  in  a 
number  of  consent  decrees  which  the  Government 
has  obtained.  For  example,  we  find  in  the  decree 
against  a  coal-tar  company,  "that  said  defendants 
and  each  of  them  are  forever  enjoined  and  pro- 
hibited from  making  or  enforcing  any  contract 
whereby  a  purchaser  of  one  line  of  material, 
such  as  tarred  felt,  shall  be  compelled  to  purchase 
from  defendants  or  any  allied  interest  any  pro- 
portion of  other  material." 

Second,  a  system  of  "tying-contracts"  may  b« 
made  the  basis  of  a  proceeding  by  the  Fed- 
eral Trade  Commission.  That  also  is  hardly  a 
remote  possibility,  since  the  Commission  is  already 


i8o  Business  Competition 

prosecuting  one  such  case,  and  has  investigated  and 
induced  the  discontinuance  of  /'tying-contracts** 
in  several  others. 

Third,  an  individual  who  deems  himself  injured 
by  such  contracts  may  sue  for  threefold  damages. 
There  we  are  getting  closer  home,  for  such  an  individ- 
ual need  not  wait  until  some  branch  of  the  Govern- 
ment has  been  set  in  motion,  but  may  go  out  and 
hire  any  lawyer  on  a  contingent  basis  and  begin 
suit,  whenever  and  against  whomsoever  he  wishes. 

Fourth,  the  same  individual  may  sue  for  an 
injunction  to  prevent  the  carrying  out  of  the  con- 
tract. This  is  something  which,  until  1914,  only 
the  Government  could  do.  But  by  the  Clayton 
Act  this  extraordinary  remedy  is  thrown  open  to 
every  one. 

Fifth,  the  Clayton  Act  may  be  invoked  as  a 
defence  against  actions  brought  to  force  the 
completion  of  the  contract  or  the  payment  of  the 
debt  based  on  the  contract. 

The  possibilities  contained  in  the  last  three 
methods  of  approach  have  not  been  thoroughly 
appreciated  by  business  men.  Let  us  assume  that 
I  am  a  dealer  in  office  equipment,  and  have  the 
exclusive  representation  for  a  certain  line  of  filing 
cabinets.    I  have  an  understanding  with  the  manu- 


Some  *'Tying-Contract"  Traps    i8i 

f  acturer  that  I  am  not  to  handle  competing  cabinets, 
in  return  for  which  I  have  the  exclusive  sale  of  his 
cabinets  for  my  territory.  In  the  course  of  time 
I  become  careless  in  my  business  methods,  and  am 
slow  about  making  remittances  for  my  purchases. 
In  short,  I  fail  to  live  up  to  my  end  of  the  agree- 
ment, and  the  manufacturer  takes  his  line  away 
from  me.  One  of  my  competitors  is  now  the 
manufacturer's  "exclusive-dealer,"  and  the  manu- 
facturer begins  to  press  me  for  the  thousand  odd 
dollars  I  owe  him  on  past  transactions. 

Let  us  further  assume  that  I  am  inclined  to  be 
nasty  about  it,  and  that  I  establish  relations  with 
a  rival  office-equipment  manufacturer,  and  also 
retain  a  lawyer  who  has  given  up  ambulance- 
chasing  for  the  more  profitable  fields  of  labour 
opened  up  by  the  Clayton  Act.  The  manufacturer 
brings  suit  against  me  for  the  thousand  odd  dollars 
I  owe  him.  I  reply  by  stirring  up  the  United 
States  Attorney  and  the  Federal  Trade  Commis- 
sion to  start  Government  proceedings,  and  by 
stirring  up  the  rival  ofEce-equipment  manufacturer 
to  file  a  suit  under  the  Clayton  Act  for  three  times 
the  damages  he  may  claim  to  have  sustained  by 
reason  of  the  illegal  "tying-contracts, "  first  with 
myself,  and  later  with  my  competitor;  and  also  stir 


i82  Business  Competition 

him  up  to  start  a  suit  to  obtain  an  injunction 
restraining  any  further  enforcement  of  the  latter 
contract.  Then  I  also  defend  the  suit  brought 
against  me,  by  claiming  that  my  debt  of  a  thousand 
odd  dollars  is  not  collectable  because  it  was  in- 
curred in  the  course  of  an  illegal  transaction.  My 
original  contract  with  the  manufacturer"  was 
illegal  under  Section  3  of  the  Clayton  Act,  I  say, 
and  shall  he  ask  the  courts  to  enforce  an  illegal 
contract?  Unless  the  manufacturer  can  show 
that  his  "  exclusive-dealer"  system  does  not  "sub- 
stantially lessen  competition,  "  he  runs  an  excellent 
chance  of  losing  his  thousand  odd  dollars,  and  of 
having  either  the  United  States  Attorney  or  the 
Federal  Trade  Commission  or  his  rival  get  an 
injunction  against  him,  and  of  his  rival  also  getting 
damages  against  him  in  the  bargain !  Some  caustic 
observations  with  respect  to  my  moral  standing 
in  the  business  community  and  the  obvious  motives 
which  prompted  my  action  might,  of  course,  be 
made;  but  courts  are  the  interpreters  of  the  law, 
not  of  morals. 

THE  CLAYTON  ACT  AS  A    "DEFENCE" 

Nor  is  my  illustration  altogether  fanciful.     The 
an ti- trust  law  has  been  invoked  more  than  once  as 


Some  ''Tying-Contract"  Traps    183 

a  defence  against  suits  for  justly  incurred  debts, 
and  the  principle  has  even  been  successfully  used 
as  a  defence  against  actions  for  unfair  competition. 
For  example,  the  Coca-Cola  Company,  in  191 5, 
sued  in  a  United  States  court  to  enjoin  an  ex- 
bottler  of  coca-cola  from  using  the  Coca-Cola 
Company's  trade-mark  after  his  exclusive  contract 
had  expired.  For  apparently  good  and  sufficient 
reasons  the  Coca-Cola  Company  had  taken  the 
bottling  privilege  away  from  the  defendant  in 
this  case,  and  had  given  it  to  somebody  else.  The 
defendant  claimed  that  he  still  had  a  stock  of 
genuine  coca-cola  syrup  on  hand,  which  he  con- 
tinued to  put  out  under  the  coca-cola  trade-mark, 
The  company  brought  suit  to  enjoin  such  un- 
authorized use  of  its  trade-mark.  In  denying  the 
injunction,  the  court  said : 

^'The  real  purpose  of  this  suit,  as  shown  from  the 
record,  is  not  to  protect  the  trade-mark  of  plaintiff 
from  infringement  by  defendants  in  palming  off 
on  the  public  their  spurious  or  inferior  goods  under 
the  trade-mark,  and  in  the  place  of  the  beverage 
coca-cola  as  made  from  the  syrup  of  plaintiff,  to  the 
consequent  injury  and  damage  of  plaintiff;  but  the 
purpose  is  to  secure  the  protection  of  the  law  to 
enforce  and  carry  out  the  monopoly  it  has  planned 


1 84  Business  Competition 

and  enjoys  in  the  manufacture  and  sale  of  non- 
patented  personal  property  through  the  medium 
of  the  exclusive-contract  system,  under  the  guise 
of  affording  protection  to  its  registered  trade- 
marks." 

In  short,  even  if  we  dismiss  from  our  minds  the 
possibility  of  Governmental  attack  based  on 
"tying-contracts"  under  Section  3  of  the  Clayton 
Act,  the  broad  opportunity  for  individuals  to 
bring  suits,  or  to  use  the  law  as  a  defence,  is  some- 
what disquieting. 

It  has  been  the  custom,  for  instance,  in  some  lines 
of  men*s  wear  for  manufacturers  to  give  show-cases, 
display  racks,  and  other  forms  of  dealer  helps  to 
those  retailers  who  would  agree  to  handle  their 
lines  exclusively.  Unquestionably  such  agreements 
are  illegal  if  they  "substantially  lessen  compe- 
tition or  tend  to  create  a  monopoly,"  and  the 
dealers  can  plead  their  illegality  as  a  defence  in  all 
suits  arising  directly  from  those  contracts.  It  is 
conceivable  that  the  manufacturer  might  not  even 
be  able  to  collect  the  money  due  him  for  his  mer- 
chandise, and  thus  the  Clayton  Act  might  be  made 
a  cloak  for  what  most  business  men  would  regard  as 
actual  fraud.  The  only  loophole  is  the  **  sub- 
stantially lessen  competition  or  tend  to  create  a 


Some  **Tying-Contract"  Traps    185 

monopoly"  clause,  and,  judging  from  such  informa- 
tion as  is  available,  this  way  of  escape  will  first 
have  to  be  paved  by  judicial  decisions. 

The  whole  subject  of  "  tying-contracts "  may  be 
summed  up  as  follows:  By  the  passage  of  the 
Clayton  Act,  Congress  has  placed  the  suspicion  of 
illegality  upon  a  very  large  group  of  common  busi- 
ness transactions.  Many  of  those  transactions 
are  necessary  for  the  continuance  of  business  rela- 
tions. Even  the  Government  of  the  United  States 
has  not  found  it  profitable  to  transact  its  business 
without  "tying-contracts'*  of  one  form  or  Another. 
But  any  contract  for  goods,  wares,  or  merchandise 
which,  by  its  operation,  prevents  the  use  or  sale 
of  competing  products,  is  illegal  unless  it  can  be 
shown  that  it  does  not  "substantially  lessen  com- 
petition or  tend  to  create  a  monopoly."  By 
Section  4  of  the  same  Act  it  is  provided  "that  any 
person  who  shall  be  injured  in  his  business  or 
property  by  reason  of  anything  forbidden  in  the 
anti-trust  laws  may  sue  therefor  .  .  .  and  shall 
recover  threefold  the  damages  by  him  sustained, 
and  the  cost  of  suit,  including  a  reasonable  attor- 
ney's fee."  By  Section  16  it  is  provided  that  any 
person,  firm,  corporation,  or  association  which  is 
ihreatened  with  loss  or  damage  by  a  violation  of  the 


1 86  Business  Competition 

anti-trust  laws — specifically  including  Section  3 — 
may  sue  for  an  injunction.  Furthermore,  business 
men  are  always  confronted  with  the  fact  that  an 
illegal  contract  is  non-enforceable.  Debts  con- 
tracted in  pursuance  of  an  illegal  contract  are  not 
collectable  by  legal  means.  Any  contract  of  the 
sort  specified  may  be  outlawed,  therefore,  unless  a 
court  shall  decide  that  it  is  so  insignificant  as  not 
to  "  substantially  lessen  competition  or  tend  to 
create  a  monopoly/* 


CHAPTER  VIII 

THE  PROBLEM  OF 

Start  the  discussion  of  "price-cutting"  in  any 
convention  of  sales-managers  of  popular  and  nation- 
ally marketed  specialties,  and  the  air  will  soon  be 
filled  with  impassioned  oratory,  philippics  against 
the  wickedness  of  "price-cutting"  mingling  with 
jeremiads  over  the  trade  devastation  it  has  caused, 
while  strident  above  the  timiult  of  denunciation, 
invective,  and  objurgation  will  rise  from  time  to 
time  the  words  "pirate,"  "cutting-off,"  "price 
maintenance,"  "department  stores,"  "mail-order 
houses,"  "chain  stores,"  and  **the  Stevens  Bill." 

Start  the  discussion  of  "price-cutting"  in  the 
United  States  Attorney's  office — but  no,  you  would 
never  be  so  foolish  as  that !  Listen  to  the  United 
States  Attorney  when  he  starts  it — and  three  times 
out  of  five  you  will  hear  him  begin  by  questioning 
the  manufacturer  to  see  whether  the  various  manu- 
facturers in  his  line  are  cutting  each  other's  prices, 
and  whether  there  has  been  any  agreement,  writ- 

187 


i88  Business  Competition 

ten  or  oral,  verbal  or  tacit,  expressed  or  implied, 
direct  or  indirect,  in  any  way,  shape,  form,  or 
manner  regarding  prices.  If  he  exhausts  this 
line  of  inquiry  without  finding  anything,  you  will 
next  hear  him  inquire  whether  the  manufacturer 
has  any  agreement  with  his  dealers  regarding 
resale  prices.  The  thoroughness  with  which  the 
United  States  Attorney  will  search  for  anything 
that  can  be  twisted  into  an  agreement — written, 
oral,  verbal,  tacit,  expressed,  implied,  direct  or 
indirect — will  impress  you.  And  when,  at  the 
close,  he  tells  the  manufacturer  that  he  is  going 
to  send  an  investigator  to  the  manufacturer's 
office  tomorrow  morning  to  look  through  the 
manufacturer's  letter  files,  salesmen's  reports, 
sales  charts,  scrap-books,  and  business  records  for 
the  past  four  or  five  years,  you  will  conclude  that 
United  States  Attorneys  are  suspicious  by  nature 
and  persistent  to  the  point  of  obstinacy! 

government's  view  of  "price-cutting" 

Perhaps,  if  you  tarry  after  the  anxious  and  be- 
wildered manufacturer  has  departed,  the  United 
States  Attorney  will  let  you  see  the  Govern- 
ment's brief  in  the  Watch-case  suit,  which  has 


The  Problem  of  ''Price-Cutting*'  189 

been  referred  to  in  an  earlier  chapter;  and  there, 
in  the  course  of  the  discussion  of  '*  price-cutting," 
you  will  read  denunciation,  invective,  objurga* 
tion,  philippics,  and  jeremiads  that  would  strike 
dumb  a  whole  convention  of  the  sales-managers. 

''Defendants*  attack  on  the  'price-cutter'  as 
an  'undesirable,'  '*  said  the  Government  in  the 
Watch-case  suit,  "is  a  direct  attack  on  the  free- 
dom of  competition  which  the  anti-trust  act  is 
intended  to  preserve.  Price-cutting  is  nothing 
more  and  nothing  less  than  competition  in  selling, 
and  it  is  one  of  the  only  two  ways  in  which  the 
consumer  gets  the  benefit  of  competition,  the 
other  being  if  economy  in  production  is  carried  to 
the  consumer.  It  will  not  do  to  assail  competition 
in  selling  by  the  use  of  adjectives  or  designat- 
ing it  as  'secret  rebating*  or  'underhand  price- 
cutting,*  etc.  ...  A  'system*  by  which  prices 
in  resale  are  controlled  and  fixed  is  condemned. 
.  .  .  Nor  does  it  make  any  difference  whether 
the  goods  sold  are  of  one  or  several  manufacturers. 
Such  system  is  against  public  policy,  whether 
done  in  combination  or  rigged  up  by  a  single 
manufacturer.  .  .  . 

''The  price-cutter  is  the  fighting  representative 
of  those  who  still  believe  in  being  permitted  to 


I90  Business  Competition 

run  their  own  business  without  external  interfer- 
ence. This  court  has  recognized  his  true  value. 
The  'price-cutter*  is  the  sole  representative  in 
the  trade  who  persists  not  only  in  believing  but 
in  acting  as  though  the  anti-trust  act  actually  pre- 
serves for  him  freedom  in  the  direction  and  conduct 
of  his  own  business.  .  .  .  Eradicate  all  price- 
cutting  .  .  .  and  you  eradicate  at  that  moment 
all  real  competition  and  leave  the  Sherman  Law 
and  its  legislatively  declared  policy  of  preserv- 
ing conditions  for  free  competition  an  absolute 
nullity." 

Now,  there  is  an  explanation  of  the  Govern- 
ment's point  of  view;  but  in  order  to  understand 
it  you  must  go  back  to  ancient  history  and  to 
fundamentals. 

The  kind  of  "price-cutting"  that  first  obtruded 
itself  upon  the  attention  of  the  lawyers  and  the 
judges  charged  with  the  enforcement  of  the  anti- 
trust laws  was  the  *' cutting"  by  one  manufacturer 
of  his  own  prices  below  those  of  his  competitor- 
manufacturer.  This  kind  of  "price-cutting"  was 
often  followed  by  a  period  when  all  the  competing 
manufacturers  were  in  a  secret  agreement  to 
maintain  prices,  and  there  was  no  "price-cutting" 
between    them    at    all.     Then,    eventually,    this 


The  Problem  of  ** Price-Cutting"  191 

secret  agreement  always  broke  up,  and  as  soon 
as  it  did  so,  this  kind  of  "price-cutting"  began 
again.  So  that  lawyers  and  courts  came  to  look 
with  suspicion  upon  those  periods  when  there  was 
no  "price-cutting,"  and  to  view  with  equanimity, 
as  proof  that  no  secret  agreement  existed  to  main- 
tain prices,  those  periods  when  there  was  "price- 
cutting."  For  agreements  between  competing 
manufacturers  to  maintain  prices  were  forbidden 
by  the  anti-trust  laws,  and  being  always  secret 
were  always  hard  to  prove;  and  this  kind  of  "price- 
cutting"  came  generally  to  be  regarded  as  the 
only  infallible  evidence  that  no  such  secret  agree- 
ment existed. 

It  is  hardly  necessary  to  say  that  this  is  not  the 
kind  of  "price-cutting"  meant  by  the  sales-man- 
agers to  whom  I  have  referred,  nor  the  kind  of 
"price-cutting"  which  I  intend  to  discuss  in  this 
chapter.  The  kind  of  "price-cutting"  I  mean  is 
the  "cutting"  by  dealers  below  the  manufac- 
turer's designated  standard  resale  price  on  goods 
that  throughout  the  trade,  from  the  manufacturer 
through  wholesalers  and  retailers  to  the  ultimate 
consumer,  are  marketed  under  some  popular  and 
well-accepted  identifying  mark — be  it  a  brand, 
or  a  trade  mark,  or  a  publisher's  imprint — that 


192  Business  Competition 

distinguishes  these  goods  from  all  others  of  the 
same  kind  and  puts  behind  them  as  a  selling 
force  the  manufacturer's  own  reputation  and  busi- 
ness responsibility.  This  is  the  "price-cutting'* 
I  mean.  And  I  believe — as  Mr.  Justice  Holmes 
strongly  intimated,  in  his  dissenting  opinion  in 
the  Dr.  Miles  case  that  I  shall  soon  discuss — 
that  it  is  because  lawyers  and  courts  have  so 
persistently  kept  in  mind  the  peculiar  associations 
of  the  other  kind  of  "price-cutting  "  that  so  much 
difference  of  opinion  now  exists  between  them  and 
the  men  who  are  distributing  popular  branded 
goods  country-wide  upon  the  reputation  and 
responsibility  of  their  manufacturers. 

CASES 

Some  excuse  was  certainly  afforded  for  this 
misapprehension  in  one  of  the  earliest  cases  in- 
volving an  agreement  in  respect  of  resale  prices 
that  was  passed  on  by  the  Supreme  Court.  There, 
more  than  thirty  wall-paper  manufacturers  formed 
a  combination  .comprising  98  per  cent,  of  the 
production  and  sale  of  wall-paper  in  the  entire 
country,  and  made  agreements  with  wall-paper  job- 
bers requiring  them  to  patronize  exclusively  the 


The  Problem  of  ** Price-Cutting"  193 

members  of  the  comfcination  and  to  sell  the  goods 
purchased  at  prices  fixed  by  the  combination. 
Jobbers  who  refused  to  enter  into  this  agreement 
were  not  to  be  supplied  with  wall-paper.  Prices 
were  promptly  raised  both  to  the  jobbers  and  to 
consumers.  *'A  more  complete  monopoly  in  an 
article  of  universal  use,"  said  the  Supreme  Court, 
in  1909,  ''has  probably  never  been  brought 
about.**  The  court  held  the  agreement  to  be 
wholly  in  violation  of  the  anti-trust  act,  and  refused 
to  sustain  any  part  of  it. 

Now  the  Supreme  Court,  before  this,  had 
already  said  that  nothing  in  the  copyright  act 
gave  publishers  any  peculiar  advantage  in  fixing 
resale  prices.  The  publisher  of  a  book  called 
The  Castaway  printed  in  each  copy  after  the 
copyright  notice  the  following : 
•  "The  price  of  this  book  at  retail  is  one  dollar 
net.  No  dealer  is  licensed  to  sell  it  at  a  less 
price  and  a  sale  at  a  less  price  will  be  treated  as 
an  infringement  of  the  copyright.'* 

A  department  store  bought  copies  of  the  book, 
and  with  full  knowledge  of  this  notice  proceeded 
to  advertise  and  sell  them  for  89  cents  apiece. 
The  Supreme  Court  refused  to  stop  them,  holding 
that  there  was  nothing  in  the  publisher's  conten- 
13 


194  Business  Competition 

tion  that  the  copyright  gave  the  publisher  the 
right  to  an  injunction.  The  court  in  that  case 
made  a  good  deal  of  the  fact  that  copyrights  are 
different  from  patents.  This  led  many  lawyers 
and  business  men  to  beheve  that  in  the  patent 
law  there  was  some  legal  support  for  resale  price 
arrangements,  and  numerous  arrangements  were 
accordingly  devised  on  this  basis.  This  tendency 
was  increased  by  the  decision  of  the  Supreme 
Court,  in  191 1,  in  the  Dr.  Miles  case,  where  goods 
that  were  neither  copyrighted  nor  patented  were 
marketed  under  resale  price  agreements. 

SUPREME  COURT  AND  DR.  MILES  CASE 

In  that  case  the  Dr.  Miles  Company  marketed 
its  medicinal  preparations — which  were  put  up 
under  secret  formulae — by  consigning  them  to 
wholesalers  under  contracts  to  resell  only  to 
designated  "retail  agents"  of  the  company  and 
only  in  accordance  with  a  schedule  of  prices 
prescribed  by  the  company.  The  "retail  agents," 
in  turn,  were  bound  by  contracts  with  the  com- 
pany to  sell  only  in  accordance  with  a  schedule 
of  prices  prescribed  by  the  company.  The  Su- 
preme Court  held  that  "  the  so-called  '  retail  agents' 


The  Problem  of  * 'Price-Cutting*'  195 

are  not  agents  at  all  either  of  the  complainant 
or  of  its  consignees,  but  are  contemplated  pur- 
chasers who  buy  to  sell  again,  that  is  retail  deal- 
ers"; and  then  proceeded  to  discuss  the  bearings 
of  the  whole  arrangement. 

"It  is,  as  we  have  seen,**  said  the  Supreme 
Court,  "a  system  of  interlocking  restrictions  by 
which  the  complainant  seeks  to  control  not  merely 
the  prices  at  which  its  agents  may  sell  its  products, 
but  the  prices  for  all  sales  by  all  dealers  at  whole- 
sale or  retail,  whether  purchasers  or  subpurchasers, 
and  thus  to  fix  the  amount  which  the  consumer 
shall  pay,  eliminating  all  competition.  The  essen- 
tial features  of  such  a  system  are  thus  described 
by  Mr.  Justice  Lurton  (then  Circuit  Judge)  .  .  . : 
'The  contracting  wholesalers  or  jobbers  covenant 
that  they  will  sell  to  no  one  who  does  not  come 
with  complainant's  license  to  buy,  and  that  they 
will  not  sell  below  a  minimum  price  dictated  by 
complainant.  Next,  all  competition  between  re- 
tailers is  destroyed,  for  each  such  retailer  can 
obtain  his  supply  only  by  signing  one  of  the  uni- 
form contracts  prepared  for  retailers,  whereby 
he  covenants  not  to  sell  to  anyone  who  proposes 
to  sell  again  unless  the  buyer  is  authorized  in 
writing  by  the  complainant,  and  not  to  sell  at  less 


196  Business  Competition 

than  a  standard  price  named  in  the  agreement. 
Thus  all  room  for  competition  between  retailers, 
who  supply  the  public,  is  made  impossible.  If 
these  contracts  leave  any  room  at  any  point  of 
the  line  for  the  usual  play  of  competition  between 
the  dealers  in  the  product  marketed  by  complain- 
ant, it  is  not  discoverable.  Thus  a  combination 
between  the  manufacturer,  the  wholesalers,  and 
the  retailers  to  maintain  prices  and  stifle  competi- 
tion has  been  brought  about. '  " 

''But  it  is  insisted,"  the  Supreme  Court  con- 
tinued, ''that  the  restrictions  are  not  invalid  either 
at  common  law  or  under  the  act  of  Congress  of 
July  2,  1890  .  .  .  upon  the  following  grounds, 
which  may  be  taken  to  embrace  the  fimdamental 
contentions  for  the  complainant:  (i)  That  the 
restrictions  are  valid  because  they  relate  to  pro- 
prietary medicines  manufactured  under  a  secret 
process;  and  (2)  that,  apart  from  this,  a  manu- 
facturer is  entitled  to  control  the  prices  on  all 
sales  of  his  own  products." 

The  Supreme  Court  then  discussed  with  great 
care  the  difference  in  legal  status  between  patents 
and  secret  processes,  and  held  that  no  special 
advantages,  so  far  as  the  point  under  discussion 
was  concerned,  pertained  to  secret  processes,  re- 


The  Problem  of  ''Price-Cutting''  197 

marking  sententiously  that  this  case  "lies  outside 
the  policy  of  the  patent  law,  and  the  extent  of 
the  right  which  that  law  secures  is  not  here  in- 
volved or  determined."  Then  the  court  took 
up  the  company*s  second  contention. 

"The  basis  of  the  argument  appears  to  be,'* 
said  the  Supreme  Court,  "that,  as  the  manufac- 
turer may  make  and  sell,  or  not,  as  he  chooses, 
he  may  affix  conditions  as  to  the  use  of  the  article 
or  as  to  the  prices  at  which  purchasers  may  dis- 
pose of  it.  The  propriety  of  the  restraint  is 
sought  to  be  derived  from  the  Hberty  of  the 
producer. 

"But  because  a  manufacturer  is  not  bound  to 
make  or  sell,  it  does  not  follow  that  in  case  of  sales 
actually  made  he  may  impose  upon  purchasers 
every  sort  of  restriction.  Thus  a  general  restraint 
upon  alienation  is  ordinarily  invalid.  'The  right 
of  alienation  is  one  of  the  essential  incidents  of  a 
right  of  general  property  in  movables,  and  re- 
straints upon  alienation  have  been  generally 
regarded  as  obnoxious  to  public  policy,  which  is 
best  subserved  by  great  freedom  of  traffic  in  such 
things  as  pass  from  hand  to  hand.  General  re- 
straints in  the  alienation  of  articles,  things,  chattels, 
except  when  a  very  special  kind  of  property  is 


198  Business  Competition 

involved,  such  as  a  slave  or  an  heirloom,  have  been 
generally  held  void.  *  .  .  . 

"Nor  can  the  manufacturer  by  rule  and  notice, 
in  the  absence  of  contract  or  statutory  right, 
even  though  the  restriction  be  known  to  pur- 
chasers, fix  prices  for  future  sales.  It  has  been 
held  by  this  court  that  no  such  privilege  exists 
under  the  copyright  statutes,  although  the  owner 
of  the  copyright  has  the  sole  right  to  vend  copies 
of  the  copyrighted  production.  .  .  . 

"It  will  hardly  be  contended,  with  respect  to 
such  a  matter,  that  the  manufacturer  of  an  article 
of  commerce,  not  protected  by  any  statutory 
grant,  is  in  any  better  case.  .  .  .  Whatever 
right  the  manufacturer  may  have  to  project  his 
control  beyond  his  own  sales  must  depend,  not 
upon  an  inherent  power  incident  to  production 
and  original  ownership,  but  upon  agreement.         ^ 

"With  respect  to  contracts  in  restraint  of  trade, 
the  earlier  doctrine  of  the  common  law  has  been 
substantially  modified  in  adaptation  to  modern 
conditions.  But  the  public  interest  is  still  the 
first  consideration.  To  sustain  the  restraint,  it 
must  be  found  to  be  reasonable  both  with  respect 
to  the  public  and  to  the  parties  and  that  it  is 
limited  to  what  is  fairly  necessary,  in  the  drcimi- 


The  Problem  of  "Price-Cutting"  199 

stances  of  the  particular  case,  for  the  protection 
of  the  covenantee.  Otherwise  restraints  of  trade 
are  void  as  against  public  policy.  ..." 


SUPREME  court's  VIEW  OF  "PRICE-CUTTING*' 


"The  present  case  is  not  analogous  to  that  of  a 
sale  of  goodwill,  or  of  an  interest  in  a  business, 
or  of  the  grant  of  a  right  to  use  a  process  of  manu- 
facture. The  complainant  has  not  parted  with 
any  interest  in  its  business  or  instrumentaHties 
of  production.  It  has  conferred  no  right  by  virtue 
of  which  purchasers  of  its  products  may  compete 
with  it.  It  retains  complete  control  over  the 
business  in  which  it  is  engaged,  manufacturing 
what  it  pleases  and  fixing  such  prices  for  its  own 
sales  as  it  may  desire.  Nor  are  we  dealing  with 
a  single  transaction,  conceivably  unrelated  to  the 
public  interest.  The  agreements  are  designed  to 
maintain  prices,  after  the  complainant  has  parted 
with  the  title  to  the  articles,  and  to  prevent  com- 
petition among  those  who  trade  in  them. 

"The  bill  asserts  the  importance  of  a  standard 
retail  price  and  alleges  generally  that  confusion 
and  damage  have  resulted  from  sales  at  less  than 
the  prices  fixed.     But  the  advantage  of  established 


200  Business  Competition 

retail  prices  primarily  concerns  the  dealers.  The 
enlarged  profits  which  would  result  from  adherence 
to  the  established  rates  would  go  to  them  and  not 
to  the  complainant.  It  is  through  the  inability 
of  the  favoured  dealers  to  realize  these  profits,  on 
accotint  of  the  described  competition,  that  the 
complainant  works  out  its  alleged  injury.  If  there 
be  an  advantage  to  a  manufacturer  in  the  main- 
tenance of  fixed  retail  prices,  the  question  remains 
whether  it  is  one  which  he  is  entitled  to  secure 
by  agreements  restricting  the  freedom  of  trade  on 
the  part  of  dealers  who  own  what  they  sell.  As 
to  this,  the  complainant  can  fare  no  better  with 
its  plan  of  identical  contracts  than  could  the 
dealers  themselves  if  they  formed  a  combination 
and  endeavoured  to  establish  the  same  restrictions, 
and  thus  to  achieve  the  same  result,  by  agreement 
with  each  other.  If  the  immediate  advantage 
they  would  thus  obtain  would  not  be  sufficient 
to  sustain  such  a  direct  agreement,  the  asserted 
ulterior  benefit  to  the  complainant  cannot  be 
regarded  as  sufficient  to  support  its  system. 

"But  agreements  or  combinations  between 
dealers,  having  for  their  sole  purpose  the  destruc- 
tion of  competition  and  the  fixing  of  prices,  are 
injurious  to  the  public  interest  and  void.    They 


The  Problem  of  ** Price-Cutting''  201 

are  not  saved  by  the  advantages  which  the  par- 
ticipants expect  to  derive  from  the  enhanced  price 
to  the  consumer.  .  .  .  And  where  commodities 
have  passed  into  the  channels  of  trade  and  are 
owned  by  dealers,  the  validity  of  agreements  to 
prevent  competition  and  to  maintain  prices  is  not 
to  be  determined  by  the  circumstance  whether 
they  were  produced  by  several  manufacturers  or 
by  one,  or  whether  they  were  previously  owned  by 
one  or  by  many.  The  complainant  having  sold  its 
product  at  prices  satisfactory  to  itself,  the  public 
is  entitled  to  whatever  advantage  may  be  derived 
from  competition  in  the  subsequent  traffic." 

I  have  quoted  the  Supreme  Court's  decision 
in  the  Dr.  Miles  case  to  this  length  because  it 
best  states  the  present  unsympathetic  point  of 
view  of  the  Supreme  Court  and  of  the  Government 
toward  resale  price  arrangements.  Two  years 
later,  in  1913,  in  the  Sanatogen  case,  the  Supreme 
Court  finally  dashed  the  hopes  encouraged  by  its 
earlier  remarks  that  had  seemed  to  indicate  an 
exception  in  the  case  of  patents ;  and  to  the  dismay 
of  lawyers  and  business  men  who  had  considered 
the  patent  law  a  safe  refuge  for  resale  price  arrange- 
ments, the  Supreme  Court  held  in  the  Sanatogen 
case  that  a  patentee  cannot  lawfully  limit    by 


202  Business  Competition 

notice  the  price  at  which  future  retail  sales  shall 
be  made  of  patented  articles  sold  by  the  patentee 
to  jobbers  and  by  them  sold  to  retailers.  The 
lower  courts  have  since  made  some  distinctions  and 
refinements  upon  the  doctrinjs  of  the  Sanatogen 
case,  to  which  reference  has  already  been  made 
in  an  earlier  chapter  in  the  course  of  discussing 
the  scope  of  patent  protection ;  but  so  far  as  un- 
patented articles  are  concerned,  the  Dr.  Miles 
decision  still  stands  in  undiminished  integrity. 

Some  time  back  I  said  that  for  an  understand- 
ing of  the  point  of  view  of  the  Supreme  Court  and 
of  the  Government  regarding  "price-cutting"  and 
resale  price  arrangements  we  must  get  down  to  fun- 
damentals ;  and  perhaps  as  good  a  place  as  any  to 
do  this  is  right  here.  Here,  then,  I  shall  drop,  for 
a  time,  my  character  of  chronicler  of  wise  legal  saws 
and  modem  Htigated  instances,  and  asstime  that  of 
a  manufacturer  of  a  popular-branded  article  facing 
this  problem  of  distribution  as  it  is  presented  to 
him  in  the  marketing  of  his  own  specialty. 

HOW  BRANDED  AND  UNBRANDED  GOODS  DIFFER 

Manufacturers  of  popular-branded  goods — by 
which,  let    me  repeat,  I  mean  goods  marketed 


The  R'oblem  of  ** Price-Cutting"  203 

throughout  the  trade,  from  the  manufacturer 
through  wholesalers  and  retailers  to  the  ultimate 
consumer,  imder  some  popular  and  well-accepted 
identifying  mark,  be  it  a  brand,  or  a  trade  mark, 
or,  a  publisher's  imprint,  that  identifies  these 
goods,  and  puts  behind  them  as  a  selling  force  the 
manufacturer's  own  reputation  and  business  re- 
sponsibility— ^have  been  setting  in  motion,  during 
recent  years,  some  entirely  new  combinations  of 
economic  forces.  The  result  is  that,  so  far  as  the 
economics  of  their  distribution  are  concerned, 
popular-branded  goods  are  today  just  as  different 
from  \mbranded  goods,  or  goods  of  little  known 
brands,  as  fish  is  from  fowl. 

In  the  marketing  of  unbranded  goods,  or  goods  of 
little  known  brands — both  classes  belong  together 
and  from  now  on  will  be  referred  to  as  "  unbranded 
goods'* — the  selling  force  of  the  manufacturer's 
own  reputation  and  business  responsibility  begins 
and  ends  with  the  manufacturer's  own  immediate 
customers,  and  is  always  a  more  or  less  local 
affair.  These  customers,  all  wholesalers,  and  all 
more  or  less  expert  judges,  weigh  and  consider 
the  price  and  quality  of  these  unbranded  goods, 
and  the  manufacturer's  local  standing  for  reliabil- 
ity and  good  service;  and  if  these  considerations 


204  Business  Competition 

finally  satisfy  them,  they  decide  to  buy  the  goods. 
Beyond  the  transaction  of  selling  his  imbranded 
goods  to  the  wholesalers,  none  of  the  elements 
in  the  manufacturer's  personal  equation  ever 
figure.  From  this  point  on,  it  is  the  wholesalers, 
the  middlemen,  the  dealers,  and  the  retailers  who 
undertake  all  the  labour  of  selling  these  unbranded 
goods,  and  all  the  responsibiHty  for  their  quality, 
reliability,  and  good  service. 

Thus,  in  competition  with  each  other,  the  retail- 
ers, for  instance,  sell  these  unbranded  goods  to 
the  large  and  inexpert  audience  of  ultimate  con- 
sumers. Into  this  transaction  with  the  consumer 
there  enters  little  of  reputation  for  reliability  and 
good  service;  and  what  does  enter  is  not  of  the 
manufacturer,  nor  of  any  of  the  wholesalers, 
middlemen,  or  dealers  through  whose  hands  the 
unbranded  goods  have  passed,  but  only  the 
reputation  of  the  retailer  himself.  The  manu- 
facturer of  these  unbranded  goods  is  not  known 
in  the  transaction. 

The  only  selling  force  behind  these  unbranded 
goods,  in  the  sale  to  the  consumer,  is  the  quality 
which  they  may  show  upon  superficial  inspection, 
and  the  retailers'  own  personal  equation. 

Thus  it  runs,  in  the  case  of  unbranded  goods, 


The  Problem  of  "Price-Cutting*'  205 

down  the  entire  line  of  trade,  from  the  first  whole- 
saler who  buys  the  goods  from  the  manufacturer, 
down  to  the  last  retailer  that  parts  with  them  to 
the  ultimate  consumer.  Beyond  the  first  step, 
the  manufacturer  is  wholly  unknown;  and  the 
middlemen  and  dealers,  whether  wholesalers  or 
retailers,  are  at  each  step  selling  these  unbranded 
goods  without  any  help  from  the  manufacturer's 
reputation  for  reliability  and  good  service  or  any 
of  the  other  elements  in  the  manufacturer's 
personal  equation. 

TREATING  THE  MANUFACTURER  AS  PRINCIPAL 

No  other  course,  indeed,  in  the  case  of  un- 
branded goods,  is  ever  possible.  For  since  the 
goods  are  not  identified  by  known  brands  the 
manufacturer  can  not,  except  in  dealing  with  his 
immediate  customers,  ear-mark  the  goods  among 
all  the  goods  of  the  same  general  class,  or  differ- 
entiate them  from  rival  goods,  or  in  any  other 
way  single  them  out,  and  vest  them  with  the  selling 
power  of  his  own  personal  equation.  The  manu- 
facturer of  unbranded  goods,  therefore,  cannot 
have,  except  in  a  remote  sense,  any  interest  in  the 
unbranded  goods  after  they  have  left  his  hands. 


3o6  Business  Competition 

For  since  he  is  unknown  in  all  subsequent  sales 
and  resales,  neither  he  nor  his  reputation  plays 
any  part  in  them  whatsoever.  Besides  the 
entire  absence  of  the  manufacturer's  personal 
equation  in  every  transaction  involving  these 
subsequent  sales  and  resales  of  unbranded  goods — 
and  resulting  directly  from  this  absence — there 
is,  in  each  such  sale  and  resale,  always  an  unpleas- 
ant degree  of  ignorance  on  the  part  of  the  pur- 
chaser as  to  whether  the  unbranded  goods  are 
really  of  good  quality  and  worth  the  price.  Be- 
yond what  superficial  examination  and  comparison 
with  other  goods  may  show,  none  of  these  pur- 
chasers has  any  basis  to  go  on,  except  the  reputa- 
tion for  reliability  and  good  service  of  the  immediate 
dealer  from  whom  he  buys.  For  since  there  is 
no  identifying  brand,  and  the  manufacturer  is 
imknown  in  the  transaction,  the  manufacturer's 
reputation  for  reliability  and  good  service  is,  of 
course,  imknown,  and  therefore  can  not  count. 

Now  consumers  never  quite  like  to  buy  in  the 
darkness  which  the  lack  of  a  brand  throws  over 
the  sale  of  all  unbranded  goods.  Consumers  have 
a  very  legitimate  and  reasonable  curiosity  regard- 
ing the  makers  of  the  goods  they  buy.  In  the 
distribution  of  ^y  kind  of  goods,  there  are,  in 


The  Problem  of  '* Price-Cutting"  207 

the  business  sense  as  distinguished  from  the  legal 
sense,  only  two  principals :  the  original  maker  and 
the  ultimate  consumer.  Wholesalers,  retailers, 
dealers,  and  middlemen,  in  this  business  sense, 
are  really  only  agents.  Consumers,  instinctively, 
when  weighing  the  claims  of  any  article  in  respect 
of  quality  and  price,  send  their  minds  back  past 
the  retailer,  and  past  the  wholesalers,  dealers, 
and  middlemen  who  have  preceded  him,  and  think 
of  the  manufacturer  as  the  real  party  responsible 
for  the  quality  of  the  article,  and  the  real  principal 
in  the  transaction  of  purchase  which  they  are 
contemplating.  Whether  the  article  be  an  auto- 
mobile or  a  package  of  biscuit,  it  is  the  manufac- 
tiurer's  name,  not  the  retailer's,  that  the  consumer 
first  looks  for  when  contemplating  a  purchase. 
If  there  is  no  brand — or  if  the  brand  is  unfamiHar, 
and  conveys  no  associations  to  the  consumer — 
then  the  consumer's  curiosity  is  baffled,  his  instinct 
to  pin  responsibility  upon  the  manufacturer  is 
defied,  and  ,the  identity  of  the  party  whom  the 
consumer  feels  is  really  the  principal  behind  the 
retailer  is  wholly  concealed. 

Dissatisfaction  with  these  obvious  disadvantages 
of  unbranded  goods  has  increased  with  the  passing 
of  years.     Variance  in  the  quality  of  the  goods, 


2o8  Business  Competition 

lack  of  information  as  to  who  is  responsible — for, 
lacking  a  brand  by  which  to  identify  the  goods 
with  some  particular  manufacturer,  responsibility 
for  variance  in  quality  can  not  be  fixed — and  the 
resulting  waste  of  time  and  frequent  disappoint- 
ment in  testing  goods  upon  each  new  purchase, 
are  all  added  considerations  that  have  led  to  the 
evolution  of  an  alternative  method  of  marketing. 
Formerly  soap  was  simply  soap.  The  grocer 
bought  it  in  bulk,  and  cut  off  bars  in  any  size  that 
the  consumer  desired.  No  two  lots  were  the  same. 
Since  the  soap  bore  no  identifying  mark,  and  the 
grocer  dealt  only  with  wholesalers,  not  even  the 
grocer  knew  whose  soap  he  was  selling.  Except 
by  superficial  examination,  and  by  reliance  upon 
the  promises  of  the  grocer  who  himself  had  no 
definite  knowledge  of  the  matter,  no  consumer 
when  he  was  buying  soap  could  tell  whether  he 
was  getting  good  soap  or  bad.  Then  came  Bab- 
bitt, who  made  soap  that  he  was  proud  of,  and 
wrapped  it  in  distinctive  packages,  and  marked 
it  with  a  brand  that  everywhere  identified  it  and 
guaranteed  it,  and  proceeded  to  market  it  all 
over  the  country.  People  everywhere  began  to 
buy  soap  by  asking  for  Babbitt's.  Then  other 
soap  makers  began  to  do  the  same  thing. 


The  Problem  of  *' Price-Cutting"  209 

Brands  and  trade-marks  had  been  known  be- 
fore, but  their  value  in  extending  the  distribution 
of  standard  goods  to  the  ends  of  the  earth  were 
never  fully  realized  until  our  own  day.  Now 
branded  goods  are  essential  in  every  plan  of 
country-wide  distribution. 

ECONOMIC  FORCES  IN  POPULAR  BRANDS 

In  terms  of  distribution,  the  difference  between 
unbranded  goods  and  popular-branded  goods  is 
this:  Unbranded  goods  are  backed  only  by  the 
selling  force  of  the  reputation  and  personal  equa- 
tion of  a  dealer  trying  to  pose  to  the  purchaser  as 
a  principal,  while  the  purchaser  is  instinctively 
regarding  him  as  only  an  agent.  Popular-branded 
goods,  however,  are  backed  by  the  combined  sell- 
ing forces  of  the  reputation  and  personal  equation 
of  the  identified  manufacturer,  whom  the  pur- 
chaser regards  as  the  real  principal  with  whom  he 
is  dealing,  and  also  of  the  reputation  and  personal 
equation  of  the  dealer,  whom  the  purchaser  re- 
gards, and  prefers  to  treat,  as  really  only  an 
agent  between  the  manufacturer  and  himself. 

In  the  marketing  of  popular-branded  goods  the 
selling  force  of  the  manufacturer's  own  reputation 


^lo  Business  Competition 

and  responsibility  begins,  as  in  tbe  case  of  im- 
branded  goods,  with  the  manufacturer's  inamediato 
customers;  but  instead  of  stopping  there,  it  con- 
tinues down  through  all  the  wholesalers,  middlemen, 
dealers,  and  retailers  until  the  last  retailer  has 
parted  with  the  goods  to  the  ultimate  consumer. 
After  the  wholesalers,  or  the  middlemen,  or  the 
dealers,  or  the  retailers  have  bought  the  popular- 
branded  goods,  and  they  in  turn  offer  them  to  their 
respective  customers,  they  appeal  to  audiences 
that  are  all  in  a  very  different  mood  from  those 
which  judge  unbranded  goods.  If  the  brand  is 
firmly  and  favourably  fixed  in  the  popular  mind, 
the  customer  is  measurably  convinced  at  the 
outset  regarding  the  quality  of  the  goods  and  the 
reputation  and  responsibility  of  the  manufacturer. 
If  to  this  knowledge  be  now  added  knowledge  of  the 
standard  price  at  which  the  goods  may  be  bought 
of  any  dealer,  and  this  standard  price  is  also  meas- 
urably satisfactory,  then  practically  every  factor 
that  is  determining  in  a  sale  is  already  favourably 
active.  Wholesalers*  salesmen  do  not  need  to 
call  so  frequently  upon  retailers,  nor  to  exert  so 
much  effort  in  obtaining  their  orders.  Retailers 
are  relieved  from  the  necessity  of  spending  so 
much  time  assuring  consumers  regarding  the  price 


The  Problem  of  ** Price-Cutting"  211 

and  quality  of  popular-branded  goods.  The 
manufacturer  counts  in  each  transaction  of  sale 
and  resale,  and  his  reputation  and  personal 
equation  are  the  chief  selling  forces  that  at  every 
stage  sell  popular-branded  goods.  Every  dealer 
benefits  equally  in  this  selling  force  added  by  the 
manufacturer.  For  every  purchaser  knows  that 
no  matter  from  whom  he  buys  these  popular- 
branded  goods  he  will  receive  the  same  quality 
for  the  standard  price.  Competition,  therefore, 
becomes  transformed,  and  vastly  increased,  and 
expands  into  national  dimensions.  Every  popular 
brand  of  goods  competes  with  all  unbranded  goods 
of  the  same  general  class,  and  with  all  other 
brands  of  goods  of  the  same  general  class.  Prices 
on  any  popular  brand  of  goods  are  prevented  by 
this  competition  from  being  too  high.  For  any 
excess  in  price  of  one  brand  over  that  of  unbranded 
goods  or  other  brands  of  goods  of  the  same  general 
class  cannot  exceed  the  sum  that  the  consumer  will 
be  willing  to  pay  for  this  insurance  of  quality  and 
reliability. 

The  pull  of  the  consumer's  reliance,  that  draws 
popular-branded  goods  swiftly  through  the  hands 
of  wholesalers,  middlemen,  dealers,  and  retailers 
and  into   the  hands  of  the  ultimate  consumers, 


212  Business  Competition 

and  the  preconceived  conviction  of  purchasers  in 
favour  of  the  goods  at  every  stage  along  the  line, 
and  the  fortification  of  innumerable  places  where 
the  purchasers'  whim  might  otherwise  break  down 
the  line — achievements  all  of  which  the  manu- 
facturer himself,  unaided  except  by  his  own  labour 
and  capital,  creates  by  aggressive  popularization 
of  his  brand — all  these  are  forces  as  real  and  potent 
as  physical  laws.  Collectively,  they  are  the 
forces  that  constitute  "goodwill."  While  the 
manufacturer's  popularization  of  his  brand  is 
today  frequently  accomplished  through  advertis- 
ing the  particular  merit  of  the  goods,  this  is  only 
because  advertising — as  contrasted  with  the  word- 
of-mouth  salesmanship  of  the  manufacturer's 
salesmen  and  the  dealers'  clerks — is  the  least 
costly  way  by  which  the  manufacturer  can  in- 
crease distribution  soon  enough,  and  to  such  an 
extent,  as  will  enable  him  to  expand  his  produc- 
tion and  to  obtain  the  lower  costs  that  alone  can 
justify  the  price  at  which  he  markets  his  goods. 
The  travelling-men's  payrolls,  railroad  tickets, 
and  hotel  bills,  the  solicitors*  wages  and  expense, 
accounts,  the  store  and  show-room  rents,  the 
over-head  charges  and  the  clerk  hire  that  would  be 
needed   in  order  to  offer  for  sale   any  specialty 


The  Problem  of  *' Price-Cutting'*  213 

simultaneously  in  every  city,  town,  and  hamlet  in 
the  country  so  that  every  dealer  and  consumer 
in  the  United  States  could  see  it  would  infinitely 
exceed  the  cost  at  which  practically  the  same 
result  can  be  accomplished  through  country-wide 
advertising  in  newspapers  and  periodicals  and 
other  mediums  of  local  and  national  circulation. 

REAL  SELLER  NAMES  THE  SELLING  PRICE 

Through  some  or  all  of  these  means,  however, 
and  always  through  unceasing  delivery  of  quality, 
the  manufacturer  of  branded  goods  must  vest  his 
brands  with  goodwill,  before  he  can  harness  to  them 
this  pull  of  the  consumer's  reliance  or  make  the 
selling  forces  of  his  own  reputation  and  responsi- 
bility the  factors  that  shall  play  the  chief  part  in 
the  sales  and  resales  of  his  branded  goods  down 
to  the  final  sale  of  the  last  retailer  to  the  ultimate 
consumer. 

Here,  then,  is  the  elemental  reason  why  the 
manufacturer  of  popular-branded  goods,  who  has 
achieved  all  this,  feels  the  necessity,  and  claims 
the  right,  to  fix  the  standard  price  beyond  his 
immediate  customers:  It  is  the  manufacturer's 
reputation,  responsibility,  personal  equation,  and 


214  Business  Competition 

gcxxlwill,  and  not  the  wholesaler's,  or  middleman's 
or  dealer's  or  retailer's  efforts,  that  constitute  the 
chief  selling  force  in  each  successive  sale  and  resale. 
In  the  marketing  of  popular-branded  goods,  middle- 
men and  dealers,  in  the  business  sense  as  distin- 
guished from  the  legal  sense,  are  really  only  agents 
of  the  manufacturer.  The  manufacturer  is  the 
real  principal,  and  the  real  seller  of  the  goods; 
and  to  the  extent  that  he  is  the  principal  and  the 
seller,  the  manufacturer  claims  the  right  that 
everyone  else  has  always  had  to  fix  the  price  of 
his  own  goods  to  his  own  customers. 

The  manufacturer  of  popular-branded  goods 
has  an  interest  in  the  success  of  his  goods  to  the 
extent  of  the  entire  volume  of  sales  of  all  the 
dealers  that  handle  them.  Each  dealer  has  an 
interest  in  the  success  of  those  goods  only  to  the 
extent  of  the  relatively  small  quantity  he  handles. 
The  manufacturer  of  popular-branded  goods  has 
his  constant  expenses  for  advertising  and  solicita- 
tion to  increase  the  volume  of  their  distribution. 
Middlemen  and  dealers  in  those  goods  do  not 
have  this  burden,  though  it  operates  for  their 
benefit.  Nor  is  this  extra  cost  passed  on  to  the 
public.  For  the  standard  price  on  every  popular 
brand  of  goods  is  first  put  at  the  figure  which  will 


The  Problem  of  ** Price-Cutting"  215 

take  of!  the  volume  necessary  in  order  to  keep  the 
manufacturer's  costs  low  enough  to  justify  the 
price.  Increased  volume  thus  lessens  costs  and 
permits  increased  quality  for  the  same  standard 
price;  and  this  in  turn  increases  volume  again, 
with  the  result  that  the  quality  delivered  to  the 
consumer  is  several  times  compounded.  The 
standard  price  on  popular-branded  goods  does 
not  tend  to  keep  the  manufacturer's  profit  per 
article  high.  Competition  from  unbranded  goods 
and  from  other  brands  of  goods  of  the  same  general 
class,  as  we  have  already  seen,  prevents  that.  The 
function  of  the  standard  price,  in  the  distribution 
of  popular-branded  goods,  is  simply  to  enlarge  the 
distribution,  and  to  keep  it  large  through  continual 
fostering  of  the  consumer's  reliance;  and  thus, 
while  keeping  the  manufacturer's  profit  per  article 
low,  to  keep  the  number  of  articles  sold,  and 
therefore  the  number  of  these  low  profits,  just  as 
plentiful  as  the  consumer's  demand  will  dictate. 
Since  the  manufacturer  of  popular-branded  goods 
assumes  the  chief  part  of  the  salesmanship  in  each 
successive  sale  and  resale  of  the  goods,  and  the  con- 
suming public  does  not  have  its  standard  price 
increased — for  competition,  as  we  have  seen, 
prevents  this — it  would  seem  to  be  in  the  public 


21 6  Business  Competition 

interest  to  permit  the  manufacturer  to  use  this 
reasonable  means  to  expand  his  business  for  the 
sake  of  more  effective  competition  with  his 
rivals. 


"  PRICE-CUTTING  "  OF  BRANDED  GOODS  ANALYZED 


Turn  back,  now,  to  what  the  Supreme  Court 
said  in  the  Dr.  Miles  case:  **The  present  case," 
said  the  court,  "is  not  analogous  to  that  of  a  sale 
of  goodwill^  or  of  an  interest  in  a  business.  .  .  . 
The  complainant  has  not  parted  with  any  interest 
in  its  business.  ...  It  has  conferred  no  right  by 
virtue  of  which  purchasers  of  its  products  may 
compete  with  it.''  Had  the  arrangement  in  the 
Dr.  Miles  case  been  analogous  to  any  of  these 
things,  the  court  seems  to  concede  that  then  it 
might  have  fallen  within  the  category  of  recognized 
reasonable  and  lawful  restrictions. 

In  all  humility,  and  with  all  deference  to  the 
great  authority  of  the  Supreme  Court,  it  is  sub- 
mitted that  some  resale  price  arrangements — not 
perhaps  the  Dr.  Miles  company^s,  of  which  I 
know  nothing  beyond  the  court  decisions,  nor  by 
any  means  all  resale  price  arrangements,  but 
some — are  analogous  to  all  the  things  mentioned 


The  Problem  of  *' Price-Cutting"  217 

by  the  Supreme  Court  in  the  passage  just  quoted, 
and  can  be  so  demonstrated. 

The  dealer  in  popular-branded  goods,  as  we 
have  seen,  has  in  his  own  business  all  the  aid  of 
the  goodwill  which  the  manufacturer's  populariza- 
tion of  his  brand  has  effected.  This  goodwill, 
of  course,  is  the  manufacturer's  own  property. 
It  is  a  real,  genuine  and  substantial  interest  in  his 
business.  To  complete  the  analogy  which  the 
Supreme  Court  disputed:  Has  not  the  manufac- 
turer of  the  popular-branded  goods  parted  with 
this  interest  in  his  business?  Has  he  not  conferred 
a  right  by  virtue  of  which  purchasers  of  his  products 
may  compete  with  him? 

This  brings  us  directly  to  the  subject  of  "price- 
cutting." 

''Price-cutting"  of  unbranded  goods  necessarily 
can  affect  only  the  small  field  and  narrow  interest 
comprising  the  ** price-cutter's"  own  trade.  Since 
the  goods  are  unbranded,  and  therefore  not  readily 
comparable  with  others  of  the  same  general  class, 
the  "price-cutter's"  competitors  have  almost  as 
good  an  opportunity  as  before  to  avail  of  their 
own  reputation,  personal  equation  and  goodwill 
to  preserve  the  confidence  of  their  trade  in  the 
quality  and  prices  of  the  goods  on  their  shelves. 


2i8  Business  Competition 

No  verdict  expressed  by  the  "price-cutter's'* 
customers,  or  the  customers  of  his  competitors, 
can,  therefore,  possibly  prejudice  other  dealers 
handling  the  same  goods  elsewhere.  For  there 
is  no  ready  way  by  which  these  unbranded  goods 
can  be  identified  with  the  other  unbranded  goods 
that  the  "price-cutter"  is  sacrificing.  Nor  can 
it  embarrass  the  manufacturer  of  the  unbranded 
goods.  For  he  is  unknown  in  the  transaction  of 
the  retail  sale,  and,  indeed,  in  any  sale  beyond  the 
sale  which  the  manufacturer  himself  made  to  the 
middleman.  ' '  Price-cutting  * '  of  unbranded  goods, 
therefore,  has  substantially  no  ulterior  bad  effects. 
"Price-cutting"  of  popular-branded  goods, 
however,  affects  not  only  the  "price-cutter's" 
trade  and  competitors  but  also  everyone  trading 
in  that  particular  brand,  up  as  high  as  the  manu- 
facturer himself  and  down  as  far  as  the  ultimate 
consumer.  As  regards  the  economic  forces  in- 
volved in  their  distribution,  unbranded  goods  and 
popular-branded  goods,  we  have  already  found, 
are  utterly  different.  Since  the  latter  are  all 
ear-marked  and  standardized,  and  their  price  and 
quality  have  been  familiarized  widely  by  known 
brands,  there  can  be  no  question  of  their  quality 
nor  of  the  manufacturer's  reliability;  and  no  appeal 


The  Problem  of  ** Price-Cutting*'  219 

by  the  "price-cutter's"  competitors  to  their  own 
personal  equation  can  overcome  this  difference 
in  price.  Against  "price-cutting"  on  popular- 
branded  goods,  therefore,  the  "price-cutter's" 
competitors  can  present  no  ready  argument. 
Until  they  throw  out  this  brand,  and  take  up 
another  line,  the  "price-cutting"  of  their  competi- 
tors on  this  brand  threatens  the  dealers*  actual 
existence.  "Price-cutting"  on  popular-branded 
goods,  therefore,  affects  their  entire  national 
distribution. 

The  capture  by  the  "price-cutter"  of  his  com- 
petitor's customers,  under  these  circumstances,  is 
seldom  due  to  any  enduring  efficiency  on  the  part 
of  the  "price-cutter."  More  often  it  is  only  a 
sudden  raid,  timed  by  the  *' price-cutter"  so  as 
to  produce  the  greatest  possible  demoralization 
and  stampede  of  his  competitor's  trade,  not  only 
in  the  lines  on  which  he  is  cutting  prices  but  also 
in  all  other  lines,  and  executed  at  a  large  initial 
loss  to  the  "price-cutter"  in  the  confidence  that 
under  cover  of  the  resulting  demoralization  and 
stampede  he  can  more  than  recoup  upon  other 
lines. 

So  immediate  and  so  deadly  is  this  kind  of 
"price-cutting"  that  if    a  "price-cutter"  misses 


220  Business  Competition 

killing  his  dealer-competitor — ^^^hom  he  generally 
aims  to  kill  whenever  he  resorts 'to  his  kind  of 
** price-cutting" — ^he  not  infrequently  kills,  and 
always  seriously  hurts,  the  manufacturer  of  the 
popular-branded  goods — toward  whom  the  "price- 
cutter,"  to  give  him  credit,  seldom  has  any  real 
ill  feeling  whatsoever.  For  to  the  extent  that  the 
manufacturer  has  popularized  his  brand  and 
developed  a  volume  of  trade,  he  begins  to  suffer 
the  moment  that  dealers  affected  by  the  "price- 
cutting"  of  others  become  imable  to  handle  the 
goods  at  a  profit  and  cease  to  handle  them  at  all. 
The  manufacturer's  own  ability  to  distribute 
economically  then  stops.  He  cannot  nationally 
distribute  his  goods  direct  to  consumers — save, 
perhaps,  in  the  case  of  a  few  high-priced  articles — 
except  at  a  vastly  increased  cost  as  compared  with 
the  normal  basis.  Since  the  goods  are  all  identi- 
fied by  popular  brands,  the  sensation  which  the 
"price-cutter"  creates  at  the  expense  of  his  com- 
petitors fixes  in  the  minds  of  consumers  generally 
a  depreciated  price  for  the  goods  on  the  shelves 
of  all  other  dealers  who  handle  them,  and  preju- 
dices every  dealer  in  his  struggle  to  obtain  among 
his  own  trade  the  reputation  for  being  an  efficient 
and  reliable  dealer.     Dealers  everywhere,  there- 


The  Problem  of  *' Price-Cutting'*  221 

fore,  begin  to  avoid  the  goods  like  pestilence; 
distribution  falls  off,  production  has  to  be  cur- 
tailed, the  manufacturer's  costs  increase,  and  his 
ability  to  continue  marketing  the  goods  at  the 
same  price  and  quality  is  threatened,  so  that 
through  the  resulting  loss  in  the  reputation  of  the 
goods  among  dealers  and  consumers  the  manu- 
facturer's business  is  always  seriously  hurt,  and 
not  infrequently  is  killed. 


FITTING  THE  COURT'S  OWN   RULE 


Doesn't  this  show  that  when  the  manufacturer 
of  popular-branded  goods  has  placed  his  goods 
on  the  dealer's  shelves,  he  may  have  given  that 
dealer  something  besides  the  mere  physical  goods? 
Isn't  the  damage  which  the  manufacturer  sustains 
from  the  dealer's  ''price-cutting"  accomplished 
by  the  dealer's  exploitation  of  the  manufacturer's 
popular  brand?  May  there  not  be  wrapped  up 
in  that  popular  brand  some  of  the  manufacturer's 
goodwill  and  a  very  substantial  interest  in  his 
business?  Didn't  the  manufacturer  perhaps  part 
with  this  interest  in  his  business^  and  entrust  it 
to  the  dealer,  the  moment  the  manufacturer's 
popular-branded    goods   were   placed    upon    the 


222  Business  Competition 

dealer's  shelves  and  the  dealer  thereby  came 
possessed  of  this  goodwill  and  interest  in  the  manu' 
facturer's  business  with  the  power  of  choice  wholly 
with  the  dealer  whether  to  use  this  goodwill  and 
interest  in  the  manufacturer's  business  for  the  pur- 
pose for  which  it  was  intended,  or  whether  to  use 
it  to  destroy  the  rest  of  the  manufacturer's  good- 
will and  business?  Isn't  it  clear  that  when  the 
manufacturer  placed  his  popular-branded  goods  on 
the  "price-cutter's"  shelves  he  conferred  a  right 
by  which,  so  far  as  concerns  the  manufacturer's 
distribution  through  all  other  dealers,  the  "price- 
cutter**  may  compete  with  the  manufacturer?  Cer- 
tainly it  would  seem  so;  and  if  it  is  so,  then  isn't 
the  analogy,  which  the  Supreme  Court — Shaving 
before  it,  let  us  always  remember,  only  the  facts 
of  the  Dr.  Miles,  case — seemed  to  think  did  not 
exist,  really  established  in  the  cases  we  have  just 
been  discussing?  And  doesn't  it  follow,  then,  that 
so  long  as  manufacturers  of  popular-branded  goods 
in  fact  compete  with  other  manufacturers,  and 
so  long  as  their  dealers  have  the  imrestricted 
right  to  pick  and  choose  between  rival  lines  and 
to  accept  or  reject  the  terms  upon  which  they  are 
offered,  contracts  made  by  such  manufacturers 
regarding  resale  prices  of  their  popular-branded 


The  Problem  of  ''Price-Cutting"  223 

goods,  and  voluntarily  entered  into  by  their  deal- 
eis,  ought  not  to  be  held  to  be  unlawful? 

With  these  questions,  I  step  out  of  my  as- 
sumed character  of  a  very  argumentative  manu- 
facturer of  popular-branded  goods,  and  return 
to  the  law  regarding  *' price-cutting"  as  the 
Government  and  most  courts  are  interpreting  it 
today.  Protracted  as  I  have  been,  I  nevertheless 
have  spared  you  instances  where  "price-cutters'*  in 
order  to  recoup  their  losses  have  foisted  unworthy 
substitutes  on  the  public,  and  instances  of  the 
undoubted  injury  of  the  public  where  "price- 
cutting"  has  driven  meritorious  popular-branded 
articles  from  the  market.  Nor  have  I  dwelt  on  the 
point,  of  which  Mr.  Justice  Holmes  made  so 
much  in  his  dissenting  opinion  in  the  Dr.  Miles 
case,  that  the  law,  as  now  interpreted,  favours 
those  manufacturers  whose  large  capital  and  exten- 
sive organization  enable  them  to  dispense  entirely 
with  the  established  wholesale  and  retail  dealers, 
and  who  can  establish  branches,  "chain-stores," 
employees,  and  agents  in  every  centre,  and  thus  sell 
their  goods  at  their  own  prices  with  impunity 
directly  to  the  ultimate  consumers.  Nor  have  I 
explained  how  the  law,  as  now  interpreted,  pre- 
judices   the  smaller  manufacturers   of    popular- 


224  Business  Competition 

branded  goods,  struggling  against  stiff  competi- 
tion and  heavy  odds,  who  have  neither  the  capital 
nor  the  organization  to  dispense  with  the  estab- 
lished wholesale  and  retail  trade  and  to  establish 
branches,  "chain-stores,"  or  representatives  in 
every  centre,  but  instead  must  utilize  the  usual 
and  regular  channels  of  wholesale  and  retail 
distribution,  and  in  the  process  preserve  as' 
independent  business  tmits  hundreds  of  thou- 
sands of  dealers  whose  businesses  have  been 
built  up  through  years  of  earnest  effort.  For 
already  I  hear  Mr.  Manufacturer,  whose  r61e  I 
have  so  protractedly  been  declaiming,  interrupting 
to  say:  All  this  may  be  good  enough  argument 
to  iu*ge  some  day  upon  the  Supreme  Court;  and 
meanwhile  it  is,  doubtless,  good  reason  for  the 
passage  of  some  such  legislation  as  the  Stevens 
Bill,  which  proposes  to  let  me  make  resale  price 
agreements  regarding  branded  goods  manufac- 
tured and  sold  under  competitive  conditions  pro- 
vided that  I  give  notice  in  the  prescribed  manner, 
and  allow  exceptions  in  certain  prescribed  cir- 
cumstances, and  am  not  myself  violating  the 
anti-trust  laws  in  other  directions.  But  what  most 
concerns  me  is:  What  is  the  law  today?  After 
what  the  Supreme  Court  has  said  in  the  Wall- 


The  Problem  of  '* Price-Cutting"  225 

paper  case,  the  Copyright  case,  the  Dr.  Miles 
case,  and  the  Sanatogen  case,  how  in  heaven *s 
name,  can  I  handle  ''price-cutting"? 

HOW  CAN  **  PRICE-CUTTING  "   BE  HANDLED? 

Well,  if  Mr.  Manufacturer  is  venturesome  by 
disposition,  and  his  goods  are  patented,  and  he  is 
willing  to  experiment  in  the  twilight  zone  between 
the  patent  law  and  the  anti-trust  laws  in  the  hope 
of  working  out  some  license  restriction  which 
may  succeed  like  the  license  restriction  in  the 
Graphophone  case  and  the  Talking  Machine 
case  that  I  described  in  the  chapter  on  the  scope 
of  patent  protection,  and  which  may  not  fail  like 
the  license  restriction  in  the  Ford  case  that  I 
described  in  the  same  chapter  or  the  license  re- 
striction in  the  Sanatogen  case  that  I  have  al- 
ready mentioned,  he  has  something  better  than  a 
gambler's  chance. 

If  the  manufacturer's  product  permits  of  distri- 
bution on  the  consignment  basis,  under  an  agree- 
ment by  which  title  to  the  goods  shall  really  remain 
in  the  manufacturer  until  the  distributor  shall 
actually  dispose  of  them  to  the  ultimate  consumer, 
the  manufacturer  can,  of  course,  handle  the  matter 

IS 


226  Business  Competition 

easily.  For  in  his  consignment  agreement  he  can 
make  his  distributor  his  legal  agent,  and,  with  the 
same  positiveness  and  legal  safety  that  the  manu- 
facturer fixes  the  price  list  at  which  his  own  sales- 
men sell,  he  can  prescribe  the  price  at  which  the 
distributor  shall  sell.  It  is  only  "price-cutting" 
upon  the  multitude  of  popular-branded  goods 
which  cannot  be  marketed  on  this  basis  that  raises 
any  practical  problem. 

"Cutting-off"  the  "price-cutter,"  by  refusing 
to  fill  further  orders  from  him,  is  very  generally 
resorted  to.  Sometimes,  the  manufacturer  tells 
the  dealer  more  or  less  plainly  that  he  will  fill  his 
orders  only  so  long  as  he  refrains  from  "price- 
cutting,"  or  that  he  will  cease  filling  any  more  of 
his  orders  imless  he  stops  "price-cutting."  Some- 
times, the  manufacturer  simply  refuses  to  fill  the 
"  price-cutter*s  "  orders  without  stating  any  reason 
for  his  action.  Sometimes,  the  manufacturer  not 
only  tells  the  "price-cutter"  why  he  is  refusing 
to  fill  his  orders,  but  he  also  tells  other  dealers 
what  he  has  done,  and  why,  and  asks  them  not  to 
supply  any  goods  to  the  "price-cutter."  Some- 
times, instead  of  refusing  to  fill  the  "price-cut- 
ter's" orders,  the  manufacturer  simply  quotes 
him  a  higher  price  than  he  charges  other  dealers. 


The  Problem  of  *' Price-Cutting'*  227 

Sometimes,  as  in  the  Cream  of  Wheat  case  de- 
scribed in  the  first  and  second  chapters,  no  harm 
results  to  the  manufacturer  from  this  "  cutting-off ." 
Sometimes,  as  in  the^Grape  Juice  case  described 
in  the  second  chapter,  considerable  risk  is  run 
by  doing  only  a  few  of  these  things.  And  some- 
times, as  in  the  Watch-case  suit  described  in  the 
second  chapter,  a  Government  prosecution  and 
an  injunction  by  the  court  are  liable  to  result. 
None  of  these  methods  of  "  cutting-off "  are, 
therefore,  free  from  danger,  and  the  United  States 
Attorney  is  generally  pretty  alert  to  make  trouble 
on  account  of  any  of  them,  when  any  of  the  sur- 
rounding circimistances  convince  him  that  they 
are  part  of  a  price-maintenance  plan. 

One  manufacturer  I  know  of,  who  markets  a 
line  of  popular-branded  goods  that  is  peculiarly 
subject  to  *' price-cutting,"  has  accomplished 
surprisingly  satisfactory  results  by  personally 
writing  each  "price-cutter,"  as  soon  as  he  learns 
of  his  "price-cutting,"  and  explaining  the  damage 
which  the  "price-cutter" — im wittingly,  it  is  always 
suggested — is  thereby  causing  to  the  manufac- 
turer. This  manufacturer  has  foimd  that  a  brief, 
manly  statement,  courteously  expressed  in  lan- 
guage that  the  dealer  can  understand,  and  setting 


228  Business  Competition 

forth:  some  of  the  chief  considerations  that  I  have 
already  discussed,  succeeds  in  inducing  the  ''price- 
cutter"  to  desist  when  threats  of  "cutting-off" 
might  be  both  futile  and  legally  dangerous. 

"I  cannot  believe,"  said  Mr.  Justice  Holmes, 
dissenting  from  the  opinion  of  the  rest  of  the 
Supreme  Court  in  the  Dr.  Miles  case,  "that  in 
the  long  run  the  public  will  profit  by  this  court 
permitting  knaves  to  cut  reasonable  prices  for 
some  ulterior  purpose  of  their  own  and  thus  to 
impair,  if  not  to  destroy,  the  production  and  sale 
of  articles  which  it  is  assumed  to  be  desirable 
that  the  public  should  be  able  to  get."  And  it  is 
interesting  to  learn,  from  the  experience  of  this 
manufacturer,  that  even  "price-cutters,"  when 
they  really  sit  down  and  seriously  reflect  upon 
the  economic  laws  governing  the  distribution  of 
popular-branded  goods,  and  upon  the  consequences 
of  "price-cutting,"  sometimes  come  round  to 
Mr.  Justice  Holmes's  view,  and  voluntarily  desist 
from  this  practice. 


CHAPTER  IX 

WHY  JOIN  A  TRADE  ASSOCIATION? 

Associations  are  the  order  of  the  day.  The 
Federal  Trade  Commission,  in  its  cordial  recogni- 
tion of  the  good  work  of  trade  associations,  has 
struck  a  responsive  note  in  the  heart  of  every 
progressive  business  man.  The  good  work  of 
trade  associations  in  advancing  the  arts,  in  en- 
couraging scientific  management,  in  teaching 
better  methods,  in  pointing  the  way  to  manufac- 
turing and  selling  economics,  in  perfecting  safety 
appliances  for  operatives,  in  reducing  fire  risks, 
in  working  out  traffic  problems,  in  maintaining 
credit  bureaus,  in  co-operative  trade  advertising, 
and  in  a  thousand  and  one  other  ways,  deserves 
and  has  received  the  heartiest  official  commenda- 
tion. Can  there  be  any  question,  Mr.  Business 
Man  inquires,  regarding  the  propriety  of  trade 
associations? 

There  can  be,  and  is.  Trade  associations  of 
329 


330  Business  Competition 

coal  operators,  coal  dealers,  railroads,  pipe  manu- 
facturers, wholesale  grocers,  retail  grocers,  paper 
manufacturers,  lumber  dealers,  retail  druggists, 
powder  manufacturers,  plumbing  supply  manufac- 
turers, butter  and  egg  dealers,  wire  manufacturers, 
horse-shoe  manufacturers,  cable  manufacturers, 
coaster-brake  manufacturers,  steamship  lines, 
bill-posters,  confectioners,  tow-boat  operators, 
publishers,  produce  dealers,  and  jewelry  dealers 
have  all  been  successfully  prosecuted  under  the 
anti-trust  laws!  Criminal  proceedings,  have  also 
been  successfully  prosecuted,  and  fines  amounting 
to  several  hundred  thousand  dollars  in  the  aggre- 
gate have  been  imposed  against  members  of  associa- 
tions. Nor  is  this  the  end,  for  the  Department 
of  Justice  now  has  pending  civil  suits  and 
criminal  actions  against  a  number  of  such  associa- 
tions under  the  anti-trust  law.  Before  this  dis- 
play of  judicial  and  governmental  disfavour,  Mr. 
Business  Man  has  excellent  reason  to  be  cautious. 

ASSOCIATIONS  WRECKED  BY  ANTI-TRUST  LAWS 

No  time  need  be  wasted  over  trade  associations 
which  fix  prices  or  pool  profits  or  divide  territory 
in   respect   of   the   sale   of   unpatented   articles. 


Why  Join  a  Trade  Association  ?  aji 

Such  associations  are  just  about  as  dangerous  as 
larceny,  and  are  now  pretty  generally  extinct; 
or  if  not  extinct,  they  find  safety  only  by  being 
as  retiring  in  their  habits  as  a  Black  Hand  gang 
or  the  Ku  Klux  Klan.  Any  association  develop- 
ing these  atavistic  traits  deserves  to  be  shunned 
like  a  house  with  the  smallpox;  for  such  an  associa- 
tion, once  discovered,  is  hardly  a  morning's  job 
for  the  United  States  Attorney. 

The  fringe  of  the  patent  law,  for  some  time, 
seemed  to  afford  refuge  for  trade  associations  created 
out  of  patent  license  agreements.  But  the  Bath- 
tub decision,  which  has  already  been  discussed 
in  the  chapter  dealing  with  the  scope  of  patent 
protection,  disposed  of  one  such  association,  in 
19 1 2,  by  a  decree  of  dissolution  under  the  anti- 
trust law,  and  paved  the  way  for  the  successful 
prosecution  under  the  anti-trust  law  of  several 
similar  associations  in  the  wire,  cable,  and  coaster- 
brake  business.  Within  limits  which  are  not 
yet  entirely  definite — as  I  have  indicated  already 
in  that  chapter — patent  rights  stiU  afford  a  legiti- 
mate and  lawful  means  by  which,  under  certain 
circumstances,  prices  may  be  fixed  and  territory 
divided.  But  with  the  indictments  and  fines  that 
marked  the  passing  of  these  association  failures. 


232  Business  Competition 

the  attractiveness  and  glory  of  patent  license  asso- 
ciations tended  rather  naturally  to  diminish. 

The  copyright  law  has  also  been  tried,  and 
found  wanting.  A  number  of  years  ago  the  pub- 
lishers of  about  75  per  cent,  of  the  copyrighted 
and  uncopyrighted  books  of  the  United  States 
organized  in  the  American  Publishers*  Associa- 
tion, and  a  majority  of  the  booksellers  throughout 
the  United  States  organized  in  the  American  Book- 
sellers* Association.  These  associations  adopted 
resolutions  and  made  agreements  obligating  mem- 
bers to  sell  copyrighted  books  exclusively  to  those 
who  maintained  standard  retail  prices  on  such 
books.  A  department  store  that  had  indulged  in 
persistent  **  price-cutting  "  was  subsequently  boy- 
cotted by  members  of  the  Publishers*  Associa- 
tion. The  methods  of  the  Publishers'  Association 
and  the  Booksellers'  Association  were  described  as 
follows  by  the  Supreme  Court : 

"The  Associations  employed  various  methods 
of  ascertaining  whether  prices  of  net  copyrighted 
books  were  cut  and  whether  there  was  competi- 
tion in  the  sale  thereof  at  retail,  and  issued  cut-off 
lists,  so-called,  directing  the  discontinuance  of 
the  sale  of  copyrighted  books  to  offenders,  and 
that  the  plaintiffs  in  error,   who  had  failed  to 


Why  Join  a  Trade  Association  ?  233 

maintain  net  prices  upon  copyrighted  books,  had 
been  put  upon  the  cut-off  lists  and  were  unable 
to  secure  a  supply  of  such  books  in  the  ordinary 
course  of  business.  It  further  appears  that  in 
some  instances  dealers  who  had  supplied  the 
plaintiffs  in  error  were  wholly  ruined  and  driven 
out  of  business;  that  the  Booksellers'  Association 
widely  circulated  the  names  of  such  dealers  and 
warned  others  to  avoid  their  fate,  and  that  various 
circulars  were  issued  to  the  trade  at  large  by  both 
Associations  warning  all  persons  against  dealing 
with  the  plaintiffs  in  error  or  other  so-called 
price-cutters;  that  after  the  reformation  of  the 
resolutions  and  agreements  in  1904  the  Associa- 
tions and  their  members  continued  the  same 
methods  as  to  ascertaining  the  supply  of  copy- 
righted books  of  the  plaintiffs  in  error,  as  to  cut- 
off lists  and  circulars  to  the  trade,  and  that,  although 
in  1907  the  resolution  of  the  Publishers*  Associa- 
tion was  modified  so  that  the  *  agreement'  became 
a  'recommendation,*  the  cut-off  lists  were  still 
issued  with  plaintiff's  name  thereon  and  that  the 
dealers  still  refused  to  supply  plaintiff  in  error 
with  books  of  any  kind." 

The    department    store    sued    the    Publishers' 
Association  for  damages  and  to  have  the  agreements 


334  Business  Competition 

declared  unlawftd  and  enjoined.  The  New  York 
Court  of  Appeals  held  that  as  regards  uncopy- 
righted  books  the  agreements  were  unlawful 
under  the  State  anti-trust  laws,  but  that  as  regards 
copyrighted  books  the  agreements  were  entirely 
lawful.  Upon  this  latter  point,  the  department 
store  took  an  appeal  to  the  Supreme  Court  of  the 
United  States  which  held,  in  1913,  that  the  agree- 
ments were  in  violation  of  the  Sherman  Act  even  as 
regards  copyrighted  books.  Subsequent  proceed- 
ings by  the  department  store  against  the  publishers 
were  eventually  settled  by  the  publishers  paying 
something  over  $200,000  in  lieu  of  damages. 

Two  trade  associations  in  the  retail  lumber 
trade,  which  similarly  came  to  grief,  have  already 
been  discussed  in  earlier  chapters.  In  one  way 
or  another,  associations  in  the  lumber  trade  have 
received  a  great  deal  of  unwelcome  attention  from 
Uncle  Sam;  and  proceedings  under  the  anti-trust 
law  are  still  pending  against  the  officers  and  mem- 
bers of  several  of  these  lumber-dealer  associations 
whose  methods  have  fallen  under  official  disap- 
proval. Any  association  activity  resembling  boy- 
cotting or  black-listing  immediately  arouses,  as 
we  have  already  seen,  the  prying  curiosity  of  the 
United  States  Attorney.     On  several  occasions. 


Why  Join  a  Trade  Association  ?  235 

the  Attorneys-General  of  various  States  have 
been  stirred  into  quite  disagreeable  activity. 
The  United  States  Commissioner  of  Corporations, 
in  19 14,  published  a  report  dealing  with  condi- 
tions of  production  and  wholesale  distribution 
in  the  lumber  trade,  and  devoted  a  considerable 
part  of  this  report  to  features  of  these  associations 
which  he  very  plainly  regarded  with  consider- 
able askance  and  suspicion.  Trade  associations, 
therefore,  have  by  no  means  had  a  perfect  record 
in  the  books  of  the  Government. 

When  the  Southern  Wholesale  Grocers*  Associa- 
tion was  investigated  and  proceedings  filled  against 
it  for  violating  the  anti-trust  law,  the  association, 
in  191 1,  came  into  court,  and  consented  to  a  decree 
which  among  other  things  enjoined  the  Associa- 
tion from  "publishing,  causing  to  be  published, 
and  assisting  or  encouraging  the  publication, 
distribution,  or  circulation  of  any  book,  pamphlet, 
or  list,  wherein  is  contained  only  the  names  of 
wholesale  grocers,  located  in  the  territory  em- 
braced by  said  organization,  who  have  announced 
their  intention  or  agreed  directly  or  indirectly, 
expressly  or  impliedly,  to  work  in  harmony  with 
the  association.**  This  decree  was  pretty  broad, 
but  not  broader,  perhaps,  than  the  court  might 


236  Business  Competition 

have  entered  after  a  full  trial,  if  the  surrounding 
circumstances  showed  any  such  state  of  facts  as 
the  Supreme  Court  has  dealt  with  in  the  two 
lumber-dealer  cases  that  I  have  already  men- 
tioned. This  decree  against  the  Wholesale  Gro- 
cers* Association  had  been  in  effect  a  little  more 
than  a  year  when  the  Attorney-General  of  the 
United  States  received  complaints  that  the  decree 
was  not  being  observed  by  the  association.  There- 
upon the  Attorney- General  began  another  investi- 
gation of  the  association,  and  having  convinced 
himself  that  the  association  had  been  disobeying 
the  decree  he  filed  new  proceedings  against  the 
association,  asking  this  time  not  for  an  injunction 
but  for  an  attachment  against  certain  officers 
and  members  for  criminal  contempt  of  court  for 
violating  the  terms  of  the  decree. 

The  court *s  interpretation  of  that  passage  of 
the  decree  that  I  have  just  quoted,  and  the  court*s 
discussion  of  some  of  the  Wholesale  Grocers* 
Association's  activities,  are  well  worth  pondering. 

association's  right  to  select  members 

"The  association  seems,"  said  the  court,  "to 
have  construed  the  words  of  the  decree  'to  work  / 


Why  Join  a  Trade  Association  ?  237 

in  harmony  with  the  association,*  as  being  synony- 
mous with  'members  of  the  association.'  That 
this  was  too  narrow  a  construction  is  obvious. 
There  was  evidence  pro  and  con  upon  the  issue 
as  to  whether  the  Hst  contained  the  names  of 
persons  or  firms  out  of  sympathy  with  the  declared 
purposes  of  the  association.  It  is  clear  that, 
if  its  names  were  purposely  confined  to  those 
(whether  members  or  non-members,  or  those 
otherwise  not  in  sympathy  with  its  purposes) 
who  worked  in  harmony  with  the  association  ii\ 
effecting  its  purpose  of  confining  the  sales  of 
manufacturers  to  those  who  were  exclusive  whole- 
salers, then  it  answered  the  description  of  the 
lists  that  were  enjoined  by  the  decree;  and  the 
issuance,  after  the  entry  of  the  decree,  of  such 
lists  would  be  a  violation  of  it.  Nor  would  the 
adding  to  or  omission  of  names  from  the  list,  with 
the  intent  to  evade  the  decree,  change  the  situa- 
tion in  this  respect.  Whether  the  evidence  is 
persuasive  beyond  reasonable  doubt  that  the  lists 
were  of  the  description  enjoined,  so  that  the  issue 
of  them,  disconnected  from  the  circumstances 
under  which  they  were  issued,  constituted  of 
itself  a  contempt,  need  not  be  determined,  in 
view  of  the  difficulty,  if  not  the  impossibility,  of 


238  Business  Competition 

considering  it  apart  from  all  the  surrounding 
circumstances,  and  in  view  of  the  decision  reached 
by  the  court  that  their  issue,  considered  in  con- 
nection with  the  attendant  circumstances,  consti- 
tuted a  violation  of  the  decree." 

Here  we  again  meet  our  old  acquaintances, 
"the  surrounding  circumstances,*'  and  see  their 
malign  influence  in  shaping  the  conclusions  of  the 
court  as  to  whether  the  anti-trust  laws  have  or 
have  not  been  violated.  That  the  court  was 
always  open-minded,  however,  appears  from  the 
way  in  which  it  disposed  of  the  Government's 
contention  that  the  association  had  violated  the 
anti-trust  laws  and  the  decree  when  it  required 
from  prospective  members,  as  a  condition  to 
election  and  to  continuance  in  membership  of  the 
association,  that  they  promise  not  to  sell  direct 
to  consumers  while  they  remain  members  of  the 
association. 

''It  may  be  conceded,"  said  the  court,  "as 
contended  by  the  plaintiff,  that  a  contract  be- 
tween many  engaged  in  the  same  business  to 
refrain  from  selling  to  an  individual  or  a  class 
would  be  an  illegal  restraint  of  trade  under  the 
Sherman  Act,  unenforceable  at  law  and  subjecting 
the  participants  to  a  criminal  prosecution  there- 


Why  Join  a  Trade  Association  ?  239 

under.  Such  a  contract  might  be  expressed  or 
implied,  or  consist  of  a  mere  combination  or  con- 
spiracy to  accomplish  that  end.  No  definite  form 
of  agreement  is  required.  The  question,  in  this 
case,  is  whether  such  a  contract,  combination, 
or  conspiracy  can  be  deduced  from  the  facts  in 
evidence. 

"The  membership  of  the  association  was  by 
its  constitution  (which  met  the  approval  of  the 
Circuit  Court)  limited  to  exclusive  wholesale 
grocers.  To  admit  one  to  membership,  it  was  first 
essential  to  determine  his  qualifications.  It  was 
therefore  necessary  for  the  association  to  ascer- 
tain concerning  each  applicant  for  membership 
whether  he  was,  at  the  time  he  sought  member- 
ship, an  exclusive  wholesaler.  It  would  otherwise 
have  been  impossible  to  maintain  an  association 
composed  only  of  the  wholesale  grocers,  and  the 
decree  recognizes  the  propriety  of  an  organiza- 
tion with  such  a  membership.  It  would  be  equally 
impossible  to  maintain  a  like  organization  if 
members,  after  admission,  were  free  to  engage  in 
retail  business  and  still  remain  members.  It  was 
therefore  proper  jor  the  association  to  purge  itself 
of  retailers  and  semi-jobbers,  A  means  of  doing 
this  was  to  investigate  the  business  of  members 


240  Business  Competition 

and  drop  those  who  might  have  lapsed  into  retail- 
ers. It  would  be  futile  to  admit  one  to  member- 
ship unless  his  expectation  when  admitted  was  to 
remain  an  exclusive  wholesaler  for  a  reasonable 
length  of  time,  since  otherwise  he  would  cease  to 
be  eligible  to  continued  membership  as  soon  as  he 
reverted  to  the  retail  business.  There  could  he 
no  impropriety y  for  the  purpose  of  determining  pre- 
sent and  future  eligibility y  to  ask  and  receive  assur- 
ances from  the  applicant  that  he  expected  to  engage^ 
while  a  member ^  in  the  exclusive  wholesale  business. 
There  was  no  other  feasible  way  of  determining 
eligibility  to  membership  in  the  association.  No 
oath  to  refrain  from  selling  direct  to  consumers 
was  administered  to  the  applicant,  and  no  forfeit, 
fine,  or  penalty  imposed  in  case  the  promise  was 
broken  by  him.  No  sanction  accompanied  the 
applicant's  assurance  or  promise,  and  the  only 
liability  that  followed  a  lapse  on  the  part  of  the 
new  member  was  ineligibility  to  continued  mem- 
bership. If  an  association  exclusively  of  whole- 
sale grocers  was  to  exist,  it  was  necessary  that 
ineligibility  be  visited  upon  any  member  who 
ceased  to  be  a  wholesale  grocer.  This  was  as 
true  in  the  absence  of  a  promise  or  assurance  as  if 
one  had  existed.     The  purpose  of  the  assurance 


Why  Join  a  Trade  Association  ?   241 

was  merely  to  convince  the  association  that  there 
was  a  reasonable  expectation  on  the  part  of  the 
applicant  to  remain  eligible  long  enough  to  justify 
admission  to  menibership.  His  right  to  sell  to 
consumers  was  not  taken  away  or  impaired  for 
any  definite  time  or  at  all.  He  had  the  option 
without  restriction.  He  could  not  sell  direct  to 
consumers  and  remain  a  wholesaler.  He  must 
either  give  up  the  one  or  the  other.  This,  how- 
ever, was  not  by  virtue  of  his  promise  or  assurance, 
but  only  because  the  two  things  were  incompatible 
with  each  other,  as  much  so  as  are  black  and  white** 
(italics  added). 

WHEN  DOES  PERSUASION  BECOME  COERCION? 

Similarly,  the  court  refused  to  agree  with  the 
Government's  contention  that  the  association 
had  no  right  to  try,  by  persuasion  that  fell  short 
of  coercion,  to  influence  the  conduct  of  manufac- 
turers in  respect  of  various  kinds  of  trade  practices. 

"The   Government   also   contends,"    said   the 

court,  "that  the  association,  through  its  president, 

violated  the  decree  in  writing  to  manufacturers 

with  the  purpose,  in  one  instance,  to  persuade  the 

manufacturer  to  abandon  the  poHcy  of  giving 
16 


34^  Business  Competition 

'free  deals,  *  and  in  another  to  persuade  the  manu- 
facturer to  continue  the  policy  of  guaranteeing 
the  prices  of  its  goods,  in  the  hands  of  the  jobber, 
against  declines.  I  do  not  find  it  necessary  to 
determine  the  merits  of  these  policies  of  their 
effect  on  prices.  The  letters  written  the  manu- 
facturers by  the  association  seem  to  me  to  contain 
only  legitimate  arguments  to  support  the  conten- 
tions of  the  association.  They  contain  on  their 
face  no  hint  of  coercion  or  intimidation.  It  is 
conceded  that  in  each  case  they  failed  to  persuade 
the  manufacturer  to  act  as  the  association  desired. 
While  it  is  true  that  argument,  addressed  by  a 
combination  to  an  individual,  should  be  closely 
scrutinized,  in  order  to  detect  any  veiled  threat 
which  may  be  cloaked  under  the  language  of  argu- 
ment, I  do  not  think  that  such  an  inference  can 
be  fairly  drawn  from  the  correspondence  relating 
to  the  discussion  of  the  policies  mentioned.  Unless, 
therefore,  it  be  true  that  a  combination  in  the 
form  of  an  association  is  disabled  for  that  reason 
from  addressing  fair  and  legitimate  argument  to 
unorganized  individuals,  with  the  purpose  of  re- 
dressing what  it  considers  to  be  grievances,  the 
decree  has  not  been  violated  by  these  acts.  The 
contention  of  the  plaintiff  is  that  the  Sherman  Act 


Why  Join  a  Trade  Association  ?  343 

prohibits  a  combination  from  addressing  even  legiti- 
mate argument^  which  may  affect  interstate  trade 
relations,  to  an  individual  engaged  in  trade  of  thai 
character.  If  the  principle  is  correct,  it  would  work 
the  extinction  of  all  trade  organizatiofis  except  for 
purely  social  purposes.  Their  only  other  valuable 
function  is  to  redress  trade  grievances  by  legal 
methods.  If  persuasion  by  argument,  made  in  good 
faith-  and  without  coercion,  expressed  or  implied, 
is  not  open  to  them  for  that  purpose,  their  useful- 
ness is  at  an  end.  It  will  not  be  denied  that  there 
are  real  advantages  to  be  derived  from  a  proper 
kind  of  co-operation,  not  obtainable  by  a  single 
individual,  unaided.  It  would  be  an  unfortunate 
construction  of  the  Sherman  Law  that  would 
deprive  individuals  of  the  benefit  and  protection 
to  be  obtained  from  such  co-operation.  The 
decree  permits  the  organization  to  continue  to 
exist  for  other  than  social  purposes;  indeed,  for 
all  purposes  other  than  those  expressly  enjoined. 
This  impliedly  recognizes  that  it  may  have  other 
useful  functions  which  it  can  legally  perform. 
No  authority  has  been  cited  that  goes  to  the  eoUent 
contended  for  by  the  Government,  and  I  am  not 
prepared  to  create  one  "  (italics  added). 
When  the  coxirt  came,  however,  to  the  charge 


244  Business  Competition 

that  the  association  had  coerced  manufacturers 
to  confine  their  sales  to  exclusive  wholesalers, 
the  court  once  more  turned  back  to  "  the  surround- 
ing circumstances,'*  and  in  its  decision  well  illus- 
trated the  familiar  truth  that  only  careful  living 
can  really  live  down  a  bad  past. 

"The  fourth  class,"  said  the  court,  "relates 
to  alleged  coercion  of  manufacturers  exercised 
by  the  association  to  compel  them  to  confine  their 
sales  to  exclusive  wholesalers.  There  is  little 
evidence  in  the  record  of  netvly  occurring  acts  of 
coercion  of  this  kind,  on  the  part  of  the  association 
or  its  executive  officers,  after  the  date  of  the 
decree.  The  president  is  shown  by  the  corre- 
spondence to  have  repeatedly  disclaimed  any  effort 
on  the  part  of  the  association  to  interfere  with 
the  policy  of  manufacturers  in  regard  to  distribu- 
tion of  their  products.  The  disclaimers  probably 
lose  some  of  their  force  because  of  their  iteration 
in  stereotyped  form.  It  is  clear,  however,  that 
the  record  would  not  sustain  a  conviction  upon 
these  specifications,  if  the  association  had  had  no 
previous  history  of  coercion.  The  only  instances 
of  attempts  even  to  influence  manufacturers 
since  the  date  of  the  decree,  appearing  in  the  re- 
cord, relate  to  the  matters  of  abolishing  the  practice 


Why  Join  a  Trade  Association  ?  245 

of  giving  'free  deals'  and  retaining  the  practice 
of  guaranteeing  manufacturers*  products  in  the 
hands  of  wholesalers  against  declines  in  prices. 
Other  than  these  .  .  .  the  transactions  between 
the  association  and  the  manufacturers  were  con- 
fined to  the  furnishing  of  information  to  manu- 
facturers by  the  association  on  request  as  to  the 
standing  of  applicants  for  the  privilege  of  direct 
buying  from  the  factory  and  the  sending  of 
the  lists  of  the  association  to  manufacturers.  If 
these  acts  are  to  be  construed  merely  as  offers  of 
assistance  to  the  manufacturers  in  carrying  out  a 
policy  of  their  own  voluntary  adoption,  sympa- 
thized with  but  in  no  way  induced  by  the  associa- 
tion, they  would  probably  not  constitute  violations 
of  the  decree.  If  there  had  been  no  previous 
history  of  such  coercion  connected  with  the  dis- 
tribution of  the  lists  and  the  answering  of  the 
inquiries  by  the  association,  no  other  construction 
would  be  demanded.  It  is  conceded  that  at  one 
time  the  association  did  issue  the  lists,  then  desig- 
nated *  Green  Book,'  as  a  means  of  compelling 
the  manufacturers  to  confine  their  sales  to  those 
whose  names  appeared  on  the  list;  and  there  is 
shown  no  express  repudiation  of  the  former  policy 
of  coercion,  aided  by  such  means,  before  the  date 


2^6  Business  Competition 

of  the  decree.  The  former  history  of  coercion 
cannot  he  ignored  in  interpreting  the  meaning  of  the 
continued  distribution  of  the  lists  and  furnishing 
information  to  manufacturers,  which  occurred  after 
the  decree.  The  association  itself  is  charged  with 
knowledge  of  all  it  had  done  in  this  respect,  and 
it  is  difficult  to  conceive  that  its  present  executive 
officers  had  no  actual  knowledge  of  the  previous 
coercion  of  manufacturers  by  the  association 
through  these  means.  The  litigation  in  which 
the  association  had  been  involved,  arising  out  of 
such  acts  of  coercion,  necessarily  apprised  them 
of  it.  Construing  the  acts  of  the  association 
in  issuing  the  lists  after  the  date  of  the  decree, 
in  the  light  of  the  admittedly  improper  use  to 
which  the  *  Green  Book,'  their  predecessor,  had 
been  put  before  the  decree,  and  without  any 
express  repudiation  of  such  misuse  by  the  associa- 
tion or  its  executive  officers  at  any  time,  the 
inference  seems  a  natural  one  that  the  association 
continued  the  issue  of  the  lists  and  the  furnishing 
of  information  in  answer  to  inquiries  with  know- 
ledge that  they  would  have  a  like  effect  upon  the 
maniifacturers,  who  thereafter  received  them,  as 
they  had  had  before  the  decree.  The  issue  of  the 
lists   and   the   responses   to   inquiries  with   this 


Why  Join  a  Trade  Association  ?  247 

effect  constituted  a  violation  of  the  act  of  July  2, 
1890  .  .  .  and  of  the  final  decree  in  the  equity 
cause  which  expressly  enjoined  attempts  to  cause 
a  manufacturer  to  refrain  from  selling  retailers  or 
whomsoever  he  pleased. 

OFFICERS  AND  MEMBERS  LIABLE 

''These  acts  have  an  added  significance  to  that 
of  merely  assisting  a  manufacturer  in  carrying 
out  a  policy  of  his  own  voluntary  adoption  and 
maintenance  and  partake  of  the  coercion  which 
had  concededly  accompanied  similar  acts  of  the 
association  before  the  date  of  the  decree.  They 
constituted  a  deliberate  utilization  by  the  associa- 
tion, after  the  decree,  of  the  influence  over  the 
manufacturers  which  the  previous  policy  of  coer- 
cion had  gained  for  it,  before  and  up  to  the  time 
of  the  decree.  It  is  not  necessary,  however,  to 
decide  whether  such  acts,  in  the  absence  of  any 
misleading  statements  as  to  the  effect  of  the  decree, 
could  constitute  violations  of  its  terms.  There 
were  such  misleading  statements  made  to  the 
manufacturers.  The  association,  on  October  31, 
191 1,  through  its  president,  addressed  to  all  manu- 
facturers on   its   mailing   list   a   circular,   which 


248  Business  Competition 

purported  to  be  a  response  to  inquiries  from  certain 
manufacturers  as  to  whether  the  association  would 
continue  to  issue  the  ^ Green  Book*  after  the 
decree,  and  which  stated  that  it  would  continue 
to  do  so,  and  that  none  of  the  methods,  rules  of 
practice,  or  activities  of  the  association  would  be 
affected  by  the  decree.  In  the  light  of  the  previous 
history  of  coercion^  attending  the  distribution  of  the 
'Green  Book,*  this  could  only  have  meant  that  the 
manufacturer  who  sold  to  unlisted  persons  would  still 
incur  the  displeasure  of  the  association.  A  previous 
circular  addressed  to  members,  but  also  sent  to 
manufacturers,  cannot  be  said  to  have  corrected 
the  impression  received  from  the  circular  of  Octo- 
ber 31,  191 1.  It  was  not  addressed  to  manufac- 
turers, it  was  not  the  last  word  of  the  association 
but  was  prior  in  point  of  time  to  that  of  October 
31,  191 1,  and  was  not  calculated  by  language  to 
remove  the  impression  naturally  created  by  the 
circular  of  October  31,  191 1,  that  the  lists,  which 
superseded  the  'Green  Book,*  would  continue  to 
be  issued  by  the  association  and  with  like  effect 
as  had  been  the  '  Green  Book.  *  That  it  was  so 
understood  by  the  manufacturers,  members,  and 
those  desiring  to  become  members  or  to  be  listed, 
so  as  to  be  entitled  to  direct  buying  privileges, 


Why  Join  a  Trade  Association  ?  249 

appears  from  the  evidence  tending  to  show  that 
after  the  decree,  as  before,  though  probably  to  a 
less  extent,  there  was  a  difficulty  attending  the 
direct  buying  from  certain  manufacturers  who 
were  supplied  with  the  lists  by  the  association, 
unless  the  name  of  the  buyer  appeared  upon  the 
lists,  and  a  general  impression  that  being  listed 
was  essential  to  direct  buying  privileges.  This 
seems  a  fair  deduction  from  the  evidence,  even 
after  making  allowance  for  the  argument  that 
the  manufacturer  and  his  salesmen  would  natu- 
rally be  inclined  to  make  the  association  a  scape- 
goat for  their  own  disinclination  to  sell  the  retailer. 
The  record  also  shows  that  the  president  of  the 
association  acquired  knowledge  that  this  condi- 
tion of  the  trade  continued  after  the  date  of  the 
decree  and  up  to  the  time  of  the  commencement 
of  this  proceeding.  //  is  true  that  he  consistently 
stated  it  was  not  the  function  of  the  association  to 
interfere  with  the  manufacturer  in  his  policy  of  dis- 
tribution, yet  it  seems  clear  that  these  results  of  the 
issuance  of  the  lists  became  known  to  him  from  the 
correspondence  addressed  to  and  received  by  him,  and 
that  he  took  no  steps  to  correct  the  impression  that 
had  become  so  general  in  the  trade. 

"For  these  reasons,  I  think  the  association  and 


250  Business  Competition 

its  president  violated  the  decree  in  sending  the 
lists  and  information  to  the  manufacturers,  under 
these  conditions,  and  when  chargeable  with  this 
knowledge.  The  secretary  was  also  technically 
guilty,  but  the  evidence  shows  his  acts  were 
ministerial,  and  that  he  had  no  direction  of  the 
policy  of  the  association  **  (italics  added). 

Individual  members,  as  well  as  the  association 
itself  and  some  of  its  officers,  fell  under  the  con- 
demnation of  the  court. 

"There  are,"  said  the  court,  "two  of  the  many 
defendants,  outside  of  the  association  and  its 
president,  against  whom  the  evidence  of  coercion 
is  convincing.  These  are  the  defendants  H. 
Lacy  Hunt  and  L.  A.  Melchers.  In  each  case  the 
defendant  attempted  to  prevent  a  manufacturer 
from  selling  a  retailer  direct,  by  a  covert  threat  of 
the  withdrawal  of  patronage  of  the  writer  and  the 
other  jobbers  of  the  locality.  In  the  case  of  Mr. 
Melchers  there  is  a  fair  inference  from  his  previous 
activities  in  connection  with  the  association,  from 
his  furnishing  to  the  manufacturer  concerned  the 
list  of  the  association,  as  his  guide  in  making  sales, 
and  from  his  mention  of  the  local  jobbers,  that  he 
was  using  the  influence  of  the  association  to  ac- 
complish his  purpose.     In  the  case  of  Mr.  Hunt 


Why  Join  a  Trade  Association  ?  251 

the  use  of  the  association's  name  and  his  position 
in  it  as  a  director,  to  fortify  his  influence  as  an  in- 
dividual, is  express  and  unmistakable.  He  excuses 
his  act  by  want  of  authority  as  a  director  to  do  what 
he  stated  in  his  letter  to  the  manufacturer  he  would 
do.  While  this  might  exonerate  the  association,  it 
cannot  have  that  effect  as  to  Mr.  Hunt.  He  was 
a  member,  but  not  a  director,  when  the  decree 
was  entered  and  testifies  that  he  never  saw  or  read 
it.  The  evidence  of  the  government  tends  to 
show  that  copies  of  the  decree  were  sent  by  reg- 
istered mail  to  all  members  of  the  association. 
The  defendant  Hunt  had  knowledge  of  the  fact 
that  the  association  had  been  enjoined.  Before 
attempting  or  assuming  to  act  in  his  capacity  as 
a  director,  as  he  did  do,  it  was  his  duty  to  inform 
himself  of  the  effect  of  the  injunction,  and,  failing 
to  do  so,  he  acted  at  his  peril.  Both  defendants 
testify  that  they  had  no  intention  of  violating  the 
decree  in  doing  what  they  did.  The  decree  would 
be  valueless,  if  those  bound  by  it,  and  who  violate 
its  terms,  are  permitted  to  purge  themselves  by 
denying  the  intention  to  do  so  or  by  pleading 
ignorance  of  the  meaning  of  its  terms.  .  .  . 

"My  conclusion   is   that   the   defendant,   the 
Southern  Wholesale  Grocers'  Association,  is  guilty 


252  Business  Competition 

of  contempt  in  violating  the  decree  of  the  court, 
and  it  is  adjudged  to  pay  a  fine  of  $2500  and  such 
part  of  the  costs  as  were  incurred  because  of  the 
issues  found  against  it;  and  that  the  defendants 
J.  H.  McLaurin,  H.  Lacy  Hunt,  and  L.  A.  Mel- 
chers  are  guilty  of  contempt  in  violating  the 
decree  of  the  court,  and  each  is  adjudged  to  pay  a 
fine  of  $1000  and  such  costs  as  each  incurred 
because  of  the  issues  found  gainst  them,  respec- 
tively. All  the  other  defendants  are  discharged, 
with  their  costs  "  (italics  added). 

This  Wholesale  Grocers*  case,  which  is  almost 
a  compendium  of  the  law  on  this  subject,  and  the 
two  lumber-dealer  cases  decided  by  the  Supreme 
Court  already  referred  to,  all  teach  us  how  dan- 
gerous it  is  for  trade  associations  to  attempt  any- 
thing resembling  black-listing  and  boycotting, 
and  illustrate  how  prone  are  the  courts  to  de- 
nounce many  acts  and  practices  that  the  general 
run  of  business  men  and  association  officials  would 
hardly  describe  as  black-listing  or  boycotting. 
We  will  do  well,  therefore,  to  go  back,  now,  to  the 
subject  of  prices,  and  see  whether  here  there  are 
any  association  activities,  not  expressly  amounting 
to  agreements  regarding  prices,  which,  neverthe- 
less, may  be  in  violation  of  the  anti-trust  laws. 


Why  Join  a  Trade  Association  ?  253 
"interchange  of  information" 

Take,  for  instance,  "interchange  of  informa- 
tion": Surely  members  of  a  trade  association, 
it  is  urged,  can  interchange  information  regard- 
ing orders  in  hand,  terms  and  conditions  on  which 
orders  are  being  filled,  orders  in  prospect,  and  bids 
actually  made  and  requests  for  bids!  Orders 
and  bids  all  imply  prices.  Why  then,  can't 
prices,  and  the  folly  of  "price-cutting" — not  the 
kind  of  "price-cutting"  meant  in  the  preceding 
chapter,  but  "price-cutting"  between  manufac- 
turers and  between  brands — and  the  unwisdom  of 
low  prices,  and  the  wisdom  of  increased  prices, 
all  be  discussed  in  the  course  of  this  "interchange 
of  information"?  No  prices  are  fixed;  no  agree- 
ment is  arrived  at;  and  if  the  members  of  the 
association,  laying  this  unction  to  their  souls,  put 
on  their  hats  after  such  "interchange  of  informa- 
tion," and  go  back  to  their  offices,  and  each  in  his 
own  way  during  the  next  few  weeks  marks  up  his 
prices  without  further  commimication  with  any 
other  member,  and  to  a  different  figure  perhaps 
than  any  other  member  does,  how  can  there  be 
any  danger,  pray,  from  the  anti-trust  laws? 

So  long  as  its  members  enter  into  no  agreement 


254  Business  Competition 

to  fix  prices  or  control  competition,  some  say, 
the  legality  of  such  an  association  can  hardly  be 
questioned.  Probably  this  is  so;  but  the  question 
will  always  remain,  How  far  removed  from  fixing 
prices  and  controlling  competition  are  the  results 
of  such  an  association? 

Now,  the  Supreme  Court  has  repeatedly  held 
the  Sherman  Act  to  *' embrace  every  conceivable 
act  which  can  possibly  come  within  the  spirit  and 
purpose  of  the  law,  without  regard  to  the  garb 
in  which  such  acts  are  clothed,"  with  absolutely 
*'no  possibility  of  frustrating  that  policy  by  re- 
sorting to  any  disguise  or  subterfuge  of  form,** 
nor  yet  "to  escape  by  any  indirection  the  prohibi- 
tions of  the  statute'*;  and  courts  and  United  States 
Attorneys  have  an  uncomfortable  way  of  some- 
times drawing  awkward  conclusions  regarding 
"intent**  from  *'the  surroimding  circumstances.*' 
That  business  men,  whatever  they  may  say, 
really  always  want  to  raise  prices  as  high  as  they 
can,  seems  to  be  the  well-nigh  universal  assumption 
of  courts  and  United  States  Attome}^.  Every- 
thing, therefore,  that  members  of  a  trade  associar 
tion  say  regarding  prices  and  conditions  affecting 
prices  is,  accordingly,  viewed  judicially  and  offici- 
ally in  the  light  of  this  well-nigh  universal  assump- 


Why  Join  a  Trade  Association  ?  255 

tion.  See  how  the  Gary  Dinners  were  discussed 
by  the  District  Court,  in  19 15,  in  the  Steel  Cor- 
poration case: 

"We  may  begin  the  discussion,"  said  the  court 
in  the  Steel  Corporation  case,  "by  quoting  the 
Government's  concession  in  the  original  petition: 
*It  is  not  here  alleged  that  merely  assembling 
and  mutually  exchanging  information  and  declara- 
tion of  purpose  amount  to  an  agreement  or  a 
combination  in  restraint  of  trade.'  With  this 
concession  we  are  in  full  accord.  In  these  days 
every  large  business  has  its  societies  and  associa- 
tions and  these  meet  periodically  to  exchange 
information  of  all  kinds,  to  compare  experiences, 
to  take  note  of  improvements  in  machinery  or 
process,  to  discuss  problems,  and  generally  to 
profit  by  the  interchange  of  ideas  and  the  study 
of  observed  facts.  When  the  business  is  manu- 
facturing, of  course,  all  this  has  a  direct  bearing 
on  the  subject  of  prices,  and  these  conferences 
may  therefore  consider  that  subject  specifically. 
It  is  probably  unusual,  however,  to  find  such  a 
meeting  making  a  declaration  of  intention  to 
charge  such  and  such  prices,  although  a  mere 
declaration  to  that  effect  could  hardly  be  regarded 
as  unlawful.     Freedom  of  speech  and  freedom  of 


256  Business  Competition 

individual  action  are  justly  prized  in  American 
society,  and  no  legislation  forbids  men  to  come 
together  and  speak  freely  to  each  other  about 
every  detail  of  their  common  business.  And  if 
each  individual  should  choose  to  announce  at 
such  a  meeting  the  specific  price  he  intends  to 
charge  for  his  wares,  we  are  aware  of  no  law  that 
forbids  him  so  to  do.  But  at  this  point  we  ap- 
proach debatable  ground,  for  an  individual  is 
permitted  to  do  some  things  that  are  denied  to 
an  association  of  individuals;  and  where  at  a 
meeting  of  many  persons  such  action  is  taken  whose 
legality  is  afterwards  called  in  questiony  the  decision 
may  be  vitally  affected  by  ascertaining  the  fact 
whether  the  action  was  really  taken  by  each  individual 
acting  for  himself ^  or  whether  those  present  were,  in 
fact,  pursuing  a  common  object. 

DISTRICT  COURT  ON  GARY  DINNERS 

*'This  country  has  always  been  committed  to 
the  principle  of  fair  and  real  competition  in  busi- 
ness— the  struggle  between  individuals  to  sell 
goods  in  a  market  free  from  artificial  control  or 
influence — and  the  Sherman  Act  merely  repeats 
this  principle  when  it  condemns,  in  the  first  sec- 


Why  Join  a' Trade  Association?  257 

tion  'every  contract  or  combination  in  restraint 
of  trade.'  When,  therefore,  individuals  or  cor- 
porations make  distinct  contracts  with  each  other, 
either  in  the  form  of  pools  or  other  agreements, 
dividing  territory,  limiting  output,  or  fixing  prices, 
there  can  be  no  question  about  the  illegality 
of  such  contracts.  And  it  makes  no  difference 
whether  or  not  the  agreement  attempts  to  fix  a 
penalty  for  its  breach.  The  essence  of  the  offence 
is  that  agreement;  the  penalty  is  merely  an  inci- 
dent; so  that  a  so-called  'gentlemen's  agreement* 
to  divide  territory,  etc.,  is  quite  as  illegal  as  a 
formal  pool  with  a  formal  penalty.  In  a  gentle- 
men's agreement  the  sanction  is  the  sense  of  honour, 
the  moral  obligation^  the  indefinite,  but  real  force 
that  in  some  instances  compel  persons  to  keep  their 
promises  simply  because  they  have  promised. 

"But  suppose  what  happens  is  this:  A  number 
of  persons  take  no  action  about  territory  or  out- 
put, their  discussions  being  mainly  concerned 
with  the  subject  of  price,  and  suppose,  further, 
that  they  refrain  from  making  a  definite  formal 
agreement,  and  limit  themselves  to  an  under- 
standing, a  declaration  of  purpose — an  announce- 
ment of  intention — what,  then,  is  to  be  said? 
Have  they  offended  against  the  law?    This  ques- 


258  Business  Competition 

tion  cannot  be  answered  until  we  know  what  the 
participants  were  really  doing.  //  is  not  enough 
to  rest  upon  the  varying  names  that  may  he  given  to 
the  transaction.  It  is  of  the  utmost  importance  to 
know  how  these  names  are  to  he  interpreted,  and  this 
is  the  crucial  matter  to  he  looked  for  in  the  present 
record''  (italics  added). 

Accordingly,  the  court  very  carefully  examined 
the  Gary  Dinners  in  all  their  bearings  upon  the 
Steel  Corporation. 

There  were  two  concurring  opinions  written  by 
the  judges  who  decided  the  Steel  Corporation 
case  in  the  District  Court.  These  two  opinions 
concurred  in  their  conclusions  regarding  the  Gary 
Dinners  and  in  their  conclusions  regarding  the 
disposition  of  the  entire  case.  Both  opinions 
described  the  Gary  Dinners  at  some  length,  and 
the  quotation  that  follows  contains  the  shorter 
description : 

"The  Gary  Dinners,"  this  opinion  ran,  *'were 
dinners  given  by  E.  H.  Gary,  the  president  of  the 
corporation,  to  which  were  invited  representatives 
of  steel-manufacturing  concerns  which  thereto- 
fore had  participated  in  the  trade  meetings,  asso- 
ciations, and  pools,  and  which  produced  '90  per 
cent,  or  more*  of  the  total  output  of  the  diversi- 


Why  Join  a  Trade  Association  ?  259 

fied  products  of  the  steel  industry  of  the  country. 
"The  first  Gary  Dinner  was  given  on  November 
20,  1907,  to  meet  an  unquestioned  exigency  arising 
out  of  the  panic  then  existing.  The  steel  industry, 
like  many  industries,  was  demoralized  and  threat- 
ened with  disaster  by  the  panic  which  began  in 
the  month  preceding.  The  dinner  was  given  in 
order  to  devise  ways  and  means  to  prevent  ca- 
lamity to  the  industry.  Ways  and  means  were 
found  which  no  doubt  contributed  greatly  in  pre- 
venting disaster,  not  alone  to  the  producers  of 
steel,  but  also  to  those  intermediate  consumers 
who  were  carrying  large  and  costly  supplies. 
The  ways  and  means  consisted  then  of  nothing 
more  than  the  urgent  request  of  a  strong  man  that 
in  the  stress  of  panic  all  should  keep  their  heads 
and  avoid  the  consequences  of  reckless  cutting 
of  prices.  In  this  the  others  acquiesced,  and  in 
the  light  of  the  emergency  then  existing,  ajid  the 
disaster  averted,  I  am  of  opinion  that  the  purpose 
and  the  conduct  of  those  who  participated  in  the 
first  Gary  Dinner  were  not  unlawful,  improper,  or 
questionable.  But  after  the  exigency  had  passed, 
and  the  means  to  meet  it  had  been  exerted,  Gary 
Dinners  were  found  to  be  potential  things,  and 
they  were  afterguards  called    and    employed    to 


26o  Business  Competition 

exert  their  potentiality,  not  in  averting  disaster, 
but  in  creating  greater  profits,  by  raising  and 
maintaining  prices  in  periods  of  industrial  calm. 

"Gary  Dinners,  while  not  regularly  held,  never 
adjourned.  They  were  made  continuous  by  the 
peculiar  character  of  their  organization.  Being 
nothing  more  than  business  meetings,  they  were 
conducted  in  a  business  fashion.  A  general 
supervisory  committee  was  appointed,  and  sub- 
committees were  appointed  to  deal  with  the 
different  products  of  the  steel  industry.  These 
latter  committees  were  known  as  the  Steel  Bar 
Committee,  Ore  and  Pig  Iron  Committee,  Rails 
and  Billets  Committee,  etc.  The  membership 
of  each  committee  was  composed  of  representa- 
tives of  the  leading  concerns  which  manufactured 
the  particular  product  with  which  the  committee 
had  to  do.  These  committees  met  between  din- 
ners and  were  accessible,  through  their  chairmen, 
at  all  times  between  meetings.  The  only  differ- 
ence between  the  Gary  Dinners  and  the  meetings 
of  the  committees  was  that  at  the  dinners  the 
general  business  of  the  industry  was  discussed, 
while  at  committee  meetings  the  business  of  a 
particular  branch  of  the  trade  was  discussed. 
At    neither    were    agreements    made    concerning 


Why  Join  a  Trade  Association  ?  261 

prices  at  which  the  participants  would  sell  their 
products.  In  fact,  it  was  asserted  and  reasserted 
that  such  agreements  were  impossible,  because 
illegal;  but  in  lieu  of  agreements,  the  parties, 
both  at  the  dinners  and  at  the  committee  meet- 
ings, severally  made  what  they  chose  to  call 
*  declarations  of  purpose^ — that  is^  declarations  of 
the  prices  at  which  they  respectively  proposed  to 
sell  their  products,  to  which  prices  it  is  testified 
all  adhered  until  someone  chose  to  deviate  therefroniy 
in  which  event  he  was  'in  decency'  hound  to  notify 
his  dinner  associates  or  the  members  of  the  com- 
mittee'' (italics  added). 


That  the  result  of  these  meetings  was  an  under- 
standing about  prices  that  was  equivalent  to  an 
agreement  was  the  conclusion  reached  by  all  the 
judges.    Two  of  them  wrote: 

"Now  to  our  minds  the  testimony  taken  as  a 
whole  makes  the  conclusion  inevitable  that  the 
result  of  these  meetings  was  an  understanding  about 
prices  that  was  equivalent  to  an  agreement.  We 
have  no  doubt  that  among  those  present  some 
silently  dissented  and  went  away  intending  to 
do  what  they  pleased;  but  many,  probably  most, 


262  Business  Competition 

of  the  participants,  understood  and  assented  to 
the  view  that  they  were  under  some  kind  of  an 
obligation  to  adhere  to  the  prices  that  had  been 
announced  or  declared  as  the  general  sense  of  the 
meeting.  Certainly  there  was  no  positive  and 
expressed  obligation;  no  formal  words  of  contract 
were  used;  but  most  of  those  who  took  part  in 
these  meetings  went  away  knowing  that  prices 
had  been  named  and  feeling  bound  to  maintain 
them  until  they  saw  good  reason  to  do  otherwise, 
and  feeling  bound  to  maintain  them  even  then 
until  they  had  signified  to  their  associates  their 
intention  to  make  a  change.  We  cannot  doubt 
that  such  an  arrangement  or  understanding  or 
moral  obligation — whatever  name  may  be  the 
most  appropriate — amotmts  to  a  combination  or 
common  action  forbidden  by  law.  The  final  test, 
we  think  J  is  the  object  and  the  effect  oj  the  arrange- 
mentj  and  both  the  object  and  effect  were  to  maintain 
prices y  at  least  to  a  considerable  degree^*  (italics 
added). 

The  other  judges  were  somewhat  more  emphatic. 

"Excepting  the  feature  of  trade  allotments 
and  money  penalties,"  they  said,  ''Gary  Dinners 
were  in  effect  pools,  with  the  right  reserved  to  each 
participant  to  withdraw  upon  notice  to  the  others. 


Why  Join  a  Trade  Association  ?  263 

They  differed  from  pools  only  in  the  difference  be- 
tween the  binding  forces  of  a  moral  understanding 
and  the  legal  obligation  of  an  express  agreement. 
They  were  pools  without  penalties.  They  consti- 
tuted a  scheme  which  did  not  make  it  fatal  for  a 
competitor  of  the  corporation  to  stay  out,  but 
made  it  attractive  for  him  to  stay  in,  the  result 
of  which  was  that  prices  were  maintained  with 
greater  uniformity  and  stability  than  when  the 
same  participants  engaged  in  pool  agreements, 
violations  of  which  carried  penalties"  (italics 
added). 

Against  the  background  of  the  Gary  Dinners, 
the  judges  just  quoted — who  maintained  a  sterner 
attitude  than  the  rest  of  the  court — then  pro- 
ceeded to  review  the  course  of  prices  throughout 
the  steel  trade. 

*'This  method  of  co-operative  price  regulation," 
they  wrote,  "was  pursued  uninterruptedly  from 
November,  1907,  to  February,  1909.  Through- 
out this  time  prices  were  fixed  and  maintained  by 
'understandings*  enforced  by  *  moral  obligations.' 
Through  the  period  of  depression  of  1908,  business 
so  decreased  in  volume  that  early  in  1909  inde- 
pendent producers  broke  their  'understandings' 
with  the  corporation  and  with  one  another,  and 


264  Business  Competition 

sold  at  prices  which  each  fixed  for  itself,  in  com- 
plete disregard  of  previous  'understandings.' 
The  corporation  attempted  to  maintain  for  its 
products  prices  at  the  figures  understood;  that 
is,  to  maintain  high  prices  in  a  period  of  business 
depression,  and  'to  force  the  issues  against  all 
economic  conditions/  It  attempted  this  alone, 
and  in  its  attempt  it  failed.  Therefore,  in  that 
year,  the  corporation  was  forced  to  declare  for 
an  'open  market*;  that  is,  it  sold  at  prices  with 
respect  to  which  there  were  no  'understandings,* 
and  permitted  'natural  laws*  to  take  their  course. 
The  immediate  results  were  lower  prices  and  a 
largely  increased  volume  of  trade.  If  the  abandon- 
ment by  the  corporation  of  its  co-operative  policy 
of  fixing  and  maintaining  prices  'brought  out  a 
large  volume  of  business,*  it  logically  follows 
that  by  the  pursuit  of  that  policy  'a  large  vol- 
ume of  business*  had  theretofore  been  held 
back — that  is,  restrained — ^and  therefore  that  the 
policy  of  co-operation  as  to  prices^  based  upon 
mutual  understandings  and  enforced  by  moral 
obligations^  operated  effectually  and  unduly  to 
restrain  trade.  .  .  . 

"Coincident  with  the  breaking  of  prices  by 
the  breaking  of  understandings  made  or  reached 


Why  Join  a  Trade  Association  ?  265 

at  Gary  Dinner's,  Gary  Dinners  were  temporarily 
discontinued.  It  has  been  contended  all  along 
that  Gary  Dinners  had  nothing  to  do  with  the 
fixation  and  maintenance  of  prices;  that  while 
stabilizing  prices  resulted  from  such  dinners, 
nevertheless  their  primary  purpose  was  to  secure 
the  establishment  and  maintenance  of  good  rela- 
tions between  competitors,  and  to  afford  oppor- 
tunities for  the  exchange  of  trade  information 
and  experience.  Is  it  not  strange  that  a  breach  of 
an  understanding  as  to  the  one  matter  of  prices 
should  have  caused  a  discontinuance  of  the  din- 
ners, with  the  consequent  loss  of  their  primary 
benefits? 

"Gary  Dinners  were  resumed  in  October,  1909, 
and  with  their  resumption  higher  prices  were  resumed. 
By  the  proceedings  at  the  Gary  Dinners,  and  at 
the  meetings  of  the  dinner  committees,  the  fixing 
and  maintaining  of  prices  were  as  successfully 
accomplished  as  by  meetings  called  for  that  pur- 
pose during  the  period  from  1904  to  1907,  and 
by  the  pools  created  for  that  purpose  from  1901 
to  1904.  ...  If  by  the  three  methods  pursued, 
in  the  three  periods  named,  prices  were  not  artifi- 
cially and  successfully  maintained,  as  shown  by 
the  history  covering  those  three  periods,  I  am  at  a 


266  Business  Competition 

loss  to  know  by  what  means  it  would  be  possible 
to  fix  and  maintain  prices  that  would  unduly 
restrain  trade  in  the  sense  of  violating  the  anti- 
trust law"  (italics  added). 

Few,  if  any,  business  men  would  indulge  in 
such  language  in  describing  the  operations  of  so 
mild  and  diluted  a  form  of  association  activity 
as  were  the  Gary  Dinners.  Few  business  men, 
indeed,  would  be  likely  to  anticipate  any  such 
judicial  warmth  in  the  discussion  of  the  subject. 
The  Steel  Corporation  case  has  been  appealed 
to  the  Supreme  Court,  so  that  these  opinions, 
while  the  latest  word  upon  the  subject,  are  cer- 
tainly not  going  to  be  the  last,  even  as  regards 
these  identical  Gary  Dinners.  I  have,  however, 
quoted  these  District  Covut  opinions  at  this 
length,  because  the  Gary  Dinners  were  the 
only  feature  of  the  company  that  the  District 
Court  judges  united  in  condemning;  and  because 
it  was  only  for  the  reason  that  the  Gary  Dinners 
had  ceased  before  the  prosecution  was  started 
that  the  District  Court  appears  to  have  refrained 
from  enjoining  them.  These  facts,  and  the 
careful  scrutiny  with  which  the  judges  reviewed 
every  detail  connected  with  the  dinners,  make 
their  opinions  tremendously  significant. 


Why  Join  a  Trade  Association  ?  267 

EVEN  COST-ACCOUNTING  SCRUTINIZED 

Take,  now,  a  subject  that,  apparently,  is  very- 
far  removed  from  anything  resembling  an  agree- 
ment upon  prices, — the  subject  of  cost-accounting. 

Cost-accounting  is  absolutely  essential  in  mod- 
em business.  Standard  systems  of  cost-accounting, 
adapted  to  the  needs  of  particular  industries,  are 
obviously  legitimate,  whether  proposed  by  trade 
associations  or  promulgated  by  individuals.  Cost- 
accounting  has  been  wisely  and  energetically 
encouraged  by  the  Federal  Trade  Commission. 
One  would  hardly  doubt,  therefore,  that  in  the 
standardization  of  cost-accounting  trade  associa- 
tions had  an  opportunity  for  great  service.  But 
even  in  this  direction,  as  we  shall  see,  danger 
sometimes  lurks. 

The  United  States  Commissioner  of  Corpora- 
tions, in  191 5,  published  the  report  of  his  inves- 
tigation of  farm  machinery  trade  associations. 
In  this  report,  he  reviewed  some  tendencies  that 
most  business  men  would  hardly  suspect. 

"The  fear  of  prosecution  under  the  anti- trust 
laws,"  said  the  Commissioner,  "as  w^ell  as  practical 
difficulties  in  making  direct  price  agreements,  led 
to  other  methods  of  influencing  prices.     Co-opera- 


268  Business  Competition 

tion  in  efforts  to  maintain  prices  made  it  apparent 
that  this  object  could  be  more  easily  attained  if 
each  manufacturer  made  full  allowance  for  every 
element  of  cost  as  a  basis  for  determining  profit- 
able prices.  For  this  purpose  uniform  cost- 
accounting  systems  were  devised  in  order  that 
prices  based  on  costs  so  computed  would  be  sure 
to  afford  a  profit.  Costs  were  made  to  include 
not  only  every  item  of  actual  expense  and  depre- 
ciation, but  also  provision  for  interest  on  invest- 
ment. This  plan  was  adopted  by  the  wagon  and 
the  plow  associations  and  later  by  the  National 
Implement  &  Vehicle  Association,  in  which  they 
were  merged. 

*' Exchange  of  information  regarding  the  costs 
computed  in  this  manner  and  the  prices  actually 
received,  affords  a  means  for  determining  prices 
profitable  to  all.  If  the  individual  members  fix 
their  prices  accordingly,  substantial  uniformity 
in  prices  may  be  established  as  effectively  as  by  an 
express  price  agreement''  (italics  added). 

That  the  activity  of  trade  associations  in  respect 
of  cost-accounting  may  easily  arouse  the  suspicion 
of  the  Government  appears  from  the  Commis- 
sioner's comments  upon  the  National  Implement  & 
Vehicle  Association. 


Why  Join  a  Trade  Association  ?  269 

"  That  the  cost-accounting  movement,"  said  the 
Commissioner,  "with  its  supplementary  activities 
in  respect  to  standard  specifications,  equipment, 
etc.,  has  been  adopted  by  the  members  of  the 
National  Implement  &  Vehicle  Association  as  a 
means  of  establishing  a  higher  price  level  and  as  a 
method  by  which  to  establish  an  approximate 
standard  of  prices  for  competing  concerns  admits 
of  no  doubt.  The  computation  of  cost  includes 
interest,  not  only  on  borrowed  money  but  also 
upon  the  investment,  besides  every  possible  item 
of  expense,  as  well  as  allowances  for  all  services 
rendered.  This  figure  which  is  denominated 
'cost'  is  obviously  the  equivalent  of  a  profit- 
yielding  price.  The  fundamental  idea  of  cost  in 
cost-accounting  comprises  outlay  and  waste  and 
excludes  any  element  of  profit.  The  question 
whether  a  price  computed  in  this  manner  is  high 
or  low  is  quite  another  matter,  depending  prin- 
cipally upon  the  rate  at  which  the  interest  is 
computed. 

"In  the  present  instance  this  question  has  more 
than  an  academic  interest.  If  the  laws  of  the 
United  States  forbid  direct  regulation  of  prices  by 
competitors  among  themselves  as  agreements  in 
restraint  of  trade,  it  should  be  determined  whether 


2/0  Business  Competition 

they  do  not  also  forbid  the  regulation  oj  prices  by 
indirection^  through  concerted  action  of  competitors 
in  adopting  a  uniform  system  of  cost-accounting, 
in  exchanging  information  in  regard  to  their  costs, 
and  through  recommendations  to  fix  prices  in  accord'^ 
ance  with  the  cost.  The  adoption  of  common  stand- 
ards of  cost  and  the  exchange  of  information  in 
regard  thereto  is  mainly  to  secure  a  similar  course  of 
action  on  the  part  of  each  member, 

"Wliile  prices  of  different  makers  of  similar 
machines  under  this  system  tend  to  be  approxi- 
mately the  same,  yet  the  fact  that  the  prices  of 
each  are  based  upon  his  own  costs,  even  though 
comparisons  are  made,  theoretically,  at  least, 
contemplates  differences  in  prices  to  correspond 
to  differences  in  costs.  There  should  be  a  tendency 
toward  the  elimination  of  such  differences,  how- 
ever, unless  there  were  differences  in  quality  cor- 
responding to  the  differences  in  cost,  in  which 
case  the  prices  would  be  substantially  equalized 
by  this  method.  The  principle,  however,  of 
such  a  determination  of  prices  through  costs  is  not 
in  harmony  with  the  principle  of  competitive 
prices.  It  is  evident,  moreover,  that  the  plan  of 
meeting  to  discuss  and  compare  costs  computed 
on  this  basis  involves  the  possibility  of  agreements 


Why  Join  a  Trade  Association  ?  271 

in  respect  to  adoption  of  prices  based  upon  the 
highest  costs  reported,  or  of  agreements  to  add  a 
high,  uniform,  arbitrary  rate  of  profit,  or  even 
direct  agreements  on  prices. 

"The  question  to  be  emphasized  here  is  whether 
competing  manufacturers  should  be  permitted  to 
establish  and  maintain  even  approximately  uni- 
form prices  by  concerted  action  in  comparing 
costs;  and  whether  such  proceedings  are  free 
from  the  dangers  and  objections  incident  to 
more  direct  methods  of  fixing  uniform  prices 
among  competitors. 

"Apart  from  this  aspect  of  price  regulation, 
it  may  be  a  proper  function  of  trade  associations 
to  assist  members  to  adopt  a  proper  system  of 
90st-accounting  that  shall  accurately  measure 
amounts  actually  expended  for  or  chargeable  to 
production.  The  adoption  of  standard  specifica- 
tions, recommended  by  associations,  is  often  of 
advantage  to  both  manufacturers  and  purchasers 
and  tends  to  promote  economies  in  industry  and 
commerce.  Frequently,  however,  the  purpose  in 
establishing  standard  or  uniform  equipment  is 
to  deprive  the  purchaser  of  some  convenience 
that  he  has  formerly  received  without  any  cor- 
responding  reduction   in   price.     The  meeting   of 


2^2  Business  Competition 

competitors  to  compare  and  discuss  costs  as  a 
basis  for  prices  is,  however,  as  already  stated^ 
peculiarly  susceptible  of  being  used  as  a  cloak  for 
conferences  to  make  agreements  on  prices  "  (italics 
added). 

The  gist  of  the  whole  matter  appears  to  be  this: 
Trade  associations  cannot  safely  meddle  with 
prices,  nor  try  to  dictate  the  channels  of  trade. 
So  alert  are  the  Government  and  the  courts  to 
prosecute  any  such  association  activity  that 
trade  associations  will  do  well  to  give  the  anti- 
trust laws  the  benefit  of  the  doubt  in  respect  of 
every  association  activity  that  even  remotely  en- 
croaches upon  these  two  forbidden  subjects- 
"Interchange  of  information,"  while  always  dan- 
gerous business  wherever  these  two  subjects  are 
touched  upon,  is  not,  however,  an  impossible  feat 
for  trade  associations  lawfully  to  accomplish, 
provided  always  that  they  observe  proper  safe- 
guards and  precautions.  And  trade  associations, 
in  their  important  and  multifarious  work  of  co- 
operatively improving  technical  processes,  stand- 
ardizing materials  and  products,  increasing  the 
safety  and  comfort  of  employees,  recovering 
refunds  for  excessive  freight  charges,  fostering 
new  markets  at  home  and  abroad,   simplifying 


Why  Join  a  Trade  Association  ?  273 

terms  and  instruments  of  credit,  and  limiting 
credit  risks,  have  only  best  wishes  and  Godspeed 
from  the  Government,  the  Federal  Trade  Com- 
mission, and  the  courts. 

x8 


CHAPTER  X 

BIBLlOGRArHY  AND  AUTHORITIES 

The  court  decisions  and  other  proceedings 
cited,  quoted,  or  otherwise  particularly  referred 
to  in  the  preceding  chapters  may  be  identified  in 
the  following  list  by  their  "catch  names": 

"Adding  Machine  Case":  United  States  v.  The 
Burroughs  Adding  Machine  Company  et  al.  Petition 
was  filed  March  3,  1913,  in  the  Federal  District  Court 
at  Detroit,  Michigan,  alleging  that  the  defendants  were 
engaged  in  a  conspiracy  to  monopolize  interstate 
trade  and  commerce  in  adding  machines.  A  consent, 
decree  was  entered  at  Detroit  on  March  3,  1913. 

*'fiath-tub  Case":  United  States  v.  Standard  Sani- 
tary Manufacturing  Company  et  al.  Petition  was 
filed  July  22,  1910,  in  the  Federal  Circuit  Court, 
District  of  Maryland,  charging  a  combination,  under 
cover  of  a  patent  licensing  arrangement,  to  restrain 
competition  and  enhance  prices  of  enamel  ware.  In 
a  decision  rendered  October  13,  1911  (191  Fed.  172), 
the  court  sustained  all  the  Government's  contentions, 
and  a  decree  was  entered  November  25,  1911,  from 
which  an  appeal  was  taken  to  the  Supreme  Court. 

274 


Bibliography  and  Authorities      275 

The  decision  of  the  lower  court  was  affirmed  by  the 
Supreme  Coiirt  November  18,  1913  (226  U.  S.  20). 

"  Button  Setting  Case  " :  Elliott  Machine  Company 
V.  Center.  This  was  a  suit  in  equity  in  the  Federal 
District  Court,  Western  District  of  Michigan,  South- 
ern Division,  to  restrain  the  use  of  the  plaintiff's 
leased  machines  by  the  defendant  in  infringement  of 
the  plaintiff's  patents.  Motion  to  dismiss  the  bill  in 
equity  was  denied  February  20,  191 5  (227  Fed.  124). 

"Can  Case":  United  States  v.  American  Caii  Com- 
pany et  al.  Petition  was  filed  November  29,  191 3, 
in  the  Federal  District  Court  at  Baltimore,  Maryland, 
alleging  monopolization  of  the  business  of  making 
tin  cans.  In  a  decision  rendered  Februar}'  23,  1916, 
the  court  held  that  the  company  had  been  organized 
in  violation  of  the  Sherman  Act,  but  the  court  de- 
clined to  dissolve  the  company  and  decided  merely 
to  retain  jurisdiction  of  the  suit  (230  Fed.  859),  and 
entered  a  decree  to  that  effect  July  7,  1916.  An 
appeal  has  been  taken  to  the  Supreme  Court. 

"Cash  Register  Case":  United  States  v.  National 
Cash  Register  Co.  et  al.  Petition  was  filed  December 
4,  191 1,  in  the  Federal  Circuit  Court,  Southern  Dis- 
trict of  Ohio,  alleging  conspiracy  and  monopoly  in  the 
manufacttire,  sale,  and  shipment  of  cash  registers 
and  other  registering  devices.  A  consent  decree  was 
entered  February  i,  191 6. 

"Cash  Register  Case":  United  States  v,  John  H, 
Patterson  et  al.  Indictment  was  returned  Febniary 
22,  191 2,  in  the  Federal  District  Court  for  the  South- 
ern District  of  Ohio,  against  certain  officials  and 
employes  of  the  National  Cash  Register  Company, 


276  Business  Competition 

alleging  a  conspiracy  in  restraint  of  interstate  trade 
and  commerce  in  cash  registers.  Demurrer  was 
overruled  June  26,  191 2  (201  Fed.  697).  The  trial 
(see  205  Fed.  292)  resulted  in  a  verdict  of  guilty  as  to 
all  but  one  of  the  defendants.  Upon  appeal  to  the 
Circuit  Court  of  Appeals,  however,  this  verdict  was 
unanimously  reversed  March  13,  1915  (222  Fed.  599). 
The  Government's  application  to  the  Supreme  Court 
for  a  writ  of  certiorari  was  denied  June  14,  1915 
(238  U.  S.  635),  and  on  February  i,  1916,  the  prosecu- 
tion was  discontinued  by  an  order  of  nolle  prosequi. 

"Coal  Tar  Case":  United  States  v.  American  Coal 
Products  Company  et  al.  Petition  was  filed  March  3, 
19 1 3,  in  the  Federal  District  Court  at  New  York  City, 
charging  the  defendants  with  monopolizing  the  supply 
of  coal  tar  and  restraining  the  trade  of  competitors 
in  the  purchase  of  coal  tar  and  in  the  manufacture 
and  sale  of  tarred  roofing  felts,  coal-tar  pitch,  and  other 
coal-tar  products.  A  consent  decree  was  entered  on 
March  4,  1913. 

"Coca-Cola  Case":  Coca-Cola  Company  v.  Ben- 
nett.  This  was  a  suit  in  equit}^  in  the  Federal  District 
Court  for  Kansas,  Second  Division,  to  restrain  the 
infringement  of  the  plaintiff's  trademark  by  the 
defendant.  The  petition  was  dismissed  for  want  of 
equity  March  5,  191 5  (225  Fed.  429). 

"Copyright  Case":  Bobhs-MerriU  Company  v, 
Strauss.  This  was  a  suit  in  equity  in  the  Federal 
Circuit  Court  at  New  York  City  to  restrain  the  sale 
of  a  novel  copyrighted  by  the  plaintiff.  The  Circuit 
Court  dismissed  the  bill  July  11,  1905  (139  Fed.  155), 
and  this  decision  was  afi5rmed  by  the  Circuit  Court  of 


Bibliography  and  Authorities      277 

Appeals  June  16,  1906  (147  Fed.  15),  and  by  th« 
Supreme  Court  June  i,  1908  (210  U.  S.  339). 

"Corn  Products"  or  "Glucose  Cases:"  see  "Glu- 
cose "  or  "  Corn  Products  Cases  "  below. 

"Creamery  Package  Case":  Virtue  v.  Creamery 
Package  Manufacturing  Company.  This  was  an  action 
in  the  Federal  Circuit  Court  for  the  District  of 
Minnesota  to  recover  treble  damages  under  the 
Sherman  Act.  Upon  appeal  from  a  judgment  for  the 
defendants,  this  judgment  was  affirmed  by  the  Circuit 
Court  of  Appeals  March  23,  1910  (179  Fed.  115),  and 
by  the  Supreme  Court  January  20,  1913  (227  U.  S.  8). 

"Cream  of  Wheat  Case":  Great  Atlantic  and 
Pacific  Tea  Company  v.  Cream  of  Wheat  Company, 
This  was  a  suit  in  equity  in  the  Federal  District 
Court  in  New  York  City  to  enjoin  the  defendant  from 
refusing  to  sell  Cream  of  Wheat  to  the  plaintiff.  The 
plaintiff's  motion  for  a  preliminary  injtmction  was 
denied  July  20,  191 5  (224  Fed.  566),  and  upon  appeal 
this  decision  was  affirmed  by  the  Circuit  Court  of 
Appeals  November  10,  1915  (227  Fed.  46). 

"D anbury  Hatters'  Case":  Loewe  v.  Lawlor  et  aL 
This  was  an  action  in  the  Federal  Circuit  Court  for 
Connecticut  to  recover  treble  damages  under  the 
Sherman  Act.  A  plea  in  abatement  was  overruled 
June  9,  1904  (130  Fed.  633).  A  motion  to  correct  the 
complaint  was  denied  December  13,  1905  (142  Fed. 
216).  The  complaint  was  then  dismissed  on  demurrer 
December  7,  1906  (148  Fed.  924).  From  this  judg- 
ment the  plaintiffs  appealed,  and  the  Supreme  Court 
reversed  it  February  3,  1908,  and  held  that  the  com- 
plaint set  up  a  case  under  the  statute  and  that  the 


278  Business  Competition 

demurrer  should  have  been  overruled  (208  U.  S.  274). 
The  case  was  then  tried,  and  the  plaintiffs  recovered 
judgment  for  $232,240.12.  Upon  appeal,  the  Circuit 
Court  of  Appeals  reversed  this  judgment  and  ordered 
a  new  trial  April  10,  191 1  (187  Fed.  522).  The  case 
was  then  retried,  and  the  plaintiffs  recovered  judg- 
ment for  $252,130  November  15,  1912.  Upon  appeal, 
this  judgment  was  affirmed  by  the  Circuit  Court  of 
Appeals  December  18,  19 13  (209  Fed.  721),  and  by  the 
Supreme  Court  January  5,  1915  (235  U.  S.  522). 

"Dr.  Miles  Case":  Dr.  Miles  Medical  Company  v. 
John  D.  Park  &f  Sons  Company.  This  was  a  suit  in 
equity  to  enforce  a  system  of  agreements  in  respect  of 
resale  prices.  Upon  demurrer,  the  bill  in  equity  was 
held  not  to  state  a  cause  of  action,  and  upon  appeal 
this  decision  was  affirmed  by  the  Circuit  Court  of 
Appeals  September  10,  1908  (164  Fed.  803),  and  by 
the  Supreme  Court  April  3,  191 1  (220  U.  S.  373). 

"Ford  CavSe":  Ford  Motor  Company  v.  Union 
Motor  Sales  Company.  This  was  a  suit  in  equity  in 
the  Federal  District  Court  for  the  Southern  District 
of  Ohio,  Western  Di\'ision,  to  enjoin  the  defendant 
from  infringing  the  plaintiff's  patents  and  license 
restrictions  and  price  restrictions.  The  bill  in  equity 
was  dismissed  December  4,  1914  (225  Fed.  373). 

"Glucose"  or  "Corn  Products  Case":  Wilder 
Manufacturing  Company  v.  Corn  Products  Refining 
Company.  This  was  an  action  in  the  City  Court  of 
Atlanta,  Georgia,  by  the  Corn  Products  Refining 
Company  against  the  "Wilder  Manufacturing  Com- 
pany for  goods  sold  and  delivered.  From  a  judgment 
rendered  September  22 y  191 1,  in  favor  of  the  Corn 


Bibliography  and  Authorities      279 

Products  Refining  Company,  the  Wilder  Manufac- 
turing Company  appealed  to  the  Georgia  Court  of 
Appeals,  which  affirmed  judgment  October  2,  1912 
(i  I  Ga.  App.  588) ,  and  then  to  the  Supreme  Court  of 
the  United  States,  which  affirmed  judgment  February 
23»  1915  (236  U.  S.  165). 

"Glucose"  or  "Corn  Products  Case":  United 
States  V.  Corn  Products  Refining  Company  et  al.  Peti- 
tion was  filed  March  I,  1913,  in  the  Federal  District 
Court  at  New  York  City,  charging  defendants  with 
monopolizing  interstate  trade  and  commerce  in  corn 
products,  and  praying  for  the  dissolution  of  the  com- 
bination. The  case  was  argued  March,  1916,  and  a 
decision  favorable  to  the  Government,  and  ordering 
the  dissolution  of  the  combination,  was  handed  down 
June  24,  1916,  and  a  decree  to  that  effect  was  entered 
November  13,  191 6. 

"Grape  Juice  Case":  Frey  &  Son  Inc.  v.  Welch 
Grape  Jtdce  Company.  This  was  an  action  in  the 
Federal  District  Court  for  Maryland  to  recover  treble 
damages  under  the  Sherman  Act  and  the  Clayton  Act. 
Upon  the  trial,  the  jury  returned  a  verdict  for  the 
defendant  in  May,  19 16. 

"Graphophone  Case":  American  Grapho  phone 
Company  v.  Boston  Store  of  Chicago.  This  was  a  suit 
in  equity  in  the  Federal  District  Court  for  the  North- 
ern District  of  Illinois,  Western  Division,  to  enjoin 
the  violation  of  price  restrictions  upon  the  resale  of  the 
plaintiff's  patented  product.  Motion  to  dismiss  the 
bill  of  complaint  was  denied,  and  an  injunction  was 
granted  September  3,  191 5  (225  Fed.  785). 

"Harrow  Case":    Adriance  Piatt  &•   Company  v. 


28o  Business  Competition 

National  Harrow  Company.  This  was  a  suit  in  equity 
to  enjoin  the  publication  by  the  defendant  of  circulars 
denouncing  the  plaintiff's  harrow  as  an  infringement 
of  the  defendant's  patents.  The  bill  of  complaint  was 
dismissed  November  25,  1901  (iii  Fed.  637).  Upon 
appeal,  the  Circuit  Court  of  Appeals  reversed  this 
decision  February  25,  1903  (121  Fed.  827). 

''Harvester  Case":  United  States  v.  International 
Harvester  Company  et  al.  Petition  was  filed  April  30, 
191 2,  in  the  Federal  District  Court,  District  of  Min- 
nesota, alleging  the  acquisition  and  maintenance  of  a 
monopoly  in  harvesting  and  agricultural  machinery 
and  implements  and  twine.  Testimony  was  taken, 
an  expediting  certificate  was  filed,  and  the  case  was 
argued  before  three  circuit  judges  at  St.  Paul  during 
November,  19 13.  The  court  sustained  the  conten- 
tions of  the  Government  August  12,  1914  (214  Fed. 
987),  and  a  decree  dissolving  the  combination  was 
entered  August  15,  19 14.  The  defendants  appealed 
to  the  Supreme  Court,  and  the  case  was  argued  there 
in  April  19 15.  On  June  2,  1915,  the  court  ordered 
the  case  restored  to  the  docket  for  reargument,  which 
has  been  set  for  February,  19 17. 

"Harvester  Investigation":  International  Har- 
vester Company.  Bureau  of  Corporations,  Govern- 
ment Printing  Office,  March  3,  1913. 

"Ice  Case":  Wood  v.  Texas  Ice  &  Cold  Storage 
Company.  This  was  an  action  upon  a  contract  in  the 
District  Court  of  Texas,  Dallas  County.  From  a 
judgment  for  the  defendant  the  plaintiff  appealed  to 
the  Court  of  Civil  Appeals  of  Texas,  which  affirmed 
judgment  November  28,  1914  (171  S.  W.  497). 


Bibliography  and  Authorities     281 

"Kodak  Case":  United  States  v.  Eastman  Kodak 
Company  et  al.  Petition  was  filed  June  9,  1913,  in  the 
Federal  District  Court  at  Buffalo,  Western  District 
of  New  York,  alleging  that  the  defendants  had 
acquired  a  monopoly  of  the  business  of  manufacturing, 
selling,  and  distributing  photographic  supplies.  A 
decision  favorable  to  the  Government  was  handed 
down  August  24,  19 15  (226  Fed.  62),  and  a  final  decree 
in  conformity  therewith  was  entered  January  20,  191 6 
(230  Fed.  522).  The  defendants  have  appealed  to  the 
Supreme  Court. 

"Lamp  Case":  United  States  v.  General  Electric 
Company  et  al.  Petition  was  filed  March  3,  191 1,  in 
the  Federal  District  Court  for  the  Northern  District 
of  Ohio,  charging  a  combination  in  the  manufacture 
of  incandescent  electric  lamps.  A  decree  was  agreed 
upon  between  counsel,  which  was  entered  by  the 
court  October  12,  191 1. 

"Lumber  Dealers'  Case":  Grenada  Lumber  Com^ 
pany  v.  Mississippi.  This  was  a  suit  in  equity  in  the 
Chancery  Court  of  Holmes  County,  Mississippi,  by 
the  State  of  Mississippi  against  the  Grenada  Lumber 
Company.  From  a  decree  overruling  a  demurrer 
to  the  bill  in  equity,  the  Company  appealed  to 
the  Supreme  Court  of  Mississippi,  which  affirmed 
the  decree  October,  1910  (98  Mississippi  536).  The 
Company  then  appealed  to  the  Supreme  Court  of  the 
United  States,  which  affiinned  the  decree  May  2,  1910 
(217  U.  S.  433). 

"Lumber  Dealers*  Case":  United  States  v.  Easter ri 
States  Retail  Lumber  Dealers  Association.  Petition 
was  filed  May  19,  191 1,  in  the  Federal  Circuit  Court 


282  Business  Competition 

for  the  Southern  District  of  New  York,  charging  the 
defendants  with  conspiring  to  restrain  trade  through 
the  instrumentality  of  black  lists  and  trade  agree- 
ments. Decision  by  the  lower  court  in  favor  of  the 
Government  was  rendered  January  9,  1912  (201  Fed. 
581),  and  a  decree  was  entered  March  i,  19 13,  from 
which  an  appeal  was  taken  to  the  Supreme  Court. 
The  Supreme  Court  affirmed  the  decree  June  22,  1914 
(234  U.  S.  600). 

"Lumber  Dealers'  Investigation":  Lumber  Indus- 
try. Bureau  of  Corporations,  Government  Printing 
Office:  Part  I  published  January  20,  191 3,  Parts  II 
and  III  published  July  13,  19 14,  and  Part  IV  pub- 
lished April  21,  1 9 14. 

"Mimeograph  Case":  Henry  v.  A.  B.  Dick  Com- 
pany. This  was  a  suit  in  equity  in  the  Federal  Circuit 
Court  in  New  York  City  by  the  A.  B.  Dick  Company 
to  enjoin  the  contributory  infringement  of  its  patents. 
The  A.  B.  Dick  Company  obtained  an  injunction 
January  11,  1907  (149  Fed.  424)  and,  upon  appeal  by 
Henry,  the  Circuit  Court  of  Appeals  certified  ques- 
tions to  the  Supreme  Court,  which  answered  them  in 
the  affirmative  and  in  effect  affirmed  the  decree  March 
II,  1912  (224  U.  S.  i). 

"Mimeograph  Case":  Federal  Trade  Commission 
v.A,B.  Dick  Company.  Complaint  was  issued  April  17, 
1 91 6,  by  the  Federal  Trade  Commission  on  the  groimd 
that  the  A.  B.  Dick  Company  was  selling  machines 
under  a  license  restriction  in  violation  of  Section  3  of 
the  Clayton  Act.  Hearings  have  been  held,  and 
testimony  taken,  and  the  proceeding  is  pending. 

"Motion  Picture  Case":     United  States  v.  Motion 


Bibliography  and  Authorities     283 

Picture  Patents  Company  et  at.  Petition  was  j51ed 
August  15,  191 2,  in  the  Federal  District  Court  for  the 
Eastern  District  of  Pennsylvania,  to  remove  the  re- 
straints which  defendants  are  alleged  to  have  imposed 
upon  interstate  and  foreign  trade  and  commerce  in 
machines,  appliances,  and  apparatus  relating  to  the 
motion-picture  art,  and  upon  persons  engaged  in  such 
trade  and  commerce.  A  decision  favorable  to  the 
Government  was  handed  down  October  i,  1915  (225 
U.  S.  800),  and  a  decree  in  conformity  therewith  was 
entered  January  24,  191 6.  The  defendants  have 
appealed  to  the  Supreme  Court. 

"News  Plate  Case":  United  States  v.  Central- West 
Publishing  Co.  et  al.  Petition  was  filed  August  3, 
1 9 12,  in  the  Federal  District  Court  for  the  Northern 
District  of  Illinois,  charging  the  defendants  with 
engaging  in  unfair  competition  against  each  other 
and  against  others  in  competing  industries,  with  the 
intent  to  restrain  and  monopolize  interstate  trade  and 
commerce  in  plate  and  ready-print  matter.  A  consent 
decree,  granting  relief  as  prayed  for,  was  entered  at 
Chicago  on  August  3,  1912.  Contempt  proceedings 
for  alleged  violations  of  this  decree  were  instituted 
June  7,  1915. 

_** North  Atlantic  Steamship  Pool":  United  States 
V,  Hamburg- Amerikanische  Packet-fahrt  Actien  Gesell- 
schaft  and  others.  Petition  was  filed  January  4,  191 1, 
in  the  Federal  Circuit  Court  for  the  Southern  District 
of  New  York,  to  dissolve  a  combination  of  steamship 
lines  regulating  steerage  traffic  on  the  Atlantic  Ocean. 
Demurrers  to  the  petition  were  overruled  December 
20,  191 1  (200  Fed.  806).    A  decision  adverse  to  the 


284  Business  Competition 

Government  was  handed  down  by  the  lower  court 
October  13,  1914  (216  Fed.  971).  The  Government 
appealed  to  the  Supreme  Court,  which  on  January 
10,  1916,  refused  to  decide  the  questions  in  issue,  on 
the  ground  that  the  European  War  had  rendered 
them  moot  (239  U.  S.  466). 

**  Packers'  Case  " :  United  States  v.  Swift  &r  Co.  et  al. 
Petition  was  filed  May  10,  1902,  in  the  Federal  Circuit 
Court  for  the  Northern  District  of  Illinois,  charging 
the  defendants,  who  were  engaged  in  the  buying  of 
live  stock  and  the  selling  of  dressed  meats,  with  carry- 
ing out  an  alleged  unlawful  conspiracy  entered  into 
between  themselves  and  the  various  railway  com- 
panies to  suppress  competition  and  to  obtain  a  mono- 
poly. Demurrers  to  the  petition  were  overruled  on 
April  18,  1903,  and  a  preliminary  injunction  was 
granted  (122  Fed.  529).  The  defendants  having 
failed  to  answer,  the  court,  on  May  26,  1903,  en- 
tered a  final  decree.  The  defendants  appealed  from 
this  decree  to  the  Supreme  Court  of  the  United  States, 
where  it  was  affirmed  January  30,  1905  (196  U.  S. 

375). 

"Pattern  Case":  Butterick  Publishing  Company  v. 
Fisher.  This  was  a  suit  in  equity  in  the  Massa- 
chusetts Superior  Court,  Essex  County,  to  enjoin  the 
sale  of  rival  patterns  by  a  dealer  in  violation  of  his 
contract  with  the  plaintiff.  The  defendant  demurred 
on  the  ground  that  the  contract  was  unlawful,  but 
the  demurrer  was  overruled,  and  the  case  went  to 
trial.  The  court  refused  to  grant  an  injimction,  and 
entered  a  decree  for  the  defendant.  Upon  appeal 
to  the  Massachusetts  Supreme  Court,  however,  the 


Bibliography  and  Authorities      285 

decree  was  reversed  and  an  injunction  was  ordered 
September  8,  1909  (203  Mass.  122). 

** Pattern  Case":  BuUerick  Publishing  Company  v. 
Rose,  This  was  a  suit  in  equity  in  the  Wisconsin 
Circuit  Court,  Wood  County,  to  enjoin  the  sale  of 
rival  patterns  by  a  dealer  in  violation  of  his  contract 
with  the  plaintiff.  The  defendant  demurred  on  the 
ground  that  the  contract  was  unlawful,  but  the 
demurrer  was  overruled.  Upon  appeal  to  the  Wiscon- 
sin vSupreme  Court,  the  decision  was  affirmed  Febru- 
ary I,  1910  (141  Wise.  533). 

** Pattern  Case":  Pictorial  Review  Company  v. 
Pate  Brothers.  This  was  an  action  in  the  Texas 
Justice  Court,  Erath  County,  to  recover  upon  a 
contract.  From  a  judgment  dismissing  the  action  on 
the  ground  that  the  contract  was  unlawful,  the  plain- 
tiff appealed  to  the  County  Court  for  Erath  Count}^; 
and  from  affirmance  by  the  County  Court  the  plain- 
tiff appealed  to  the  Texas  Court  of  Civil  Appeals  which, 
in  turn,  affirmed  the  decision  February  5,  19 16 
(185  S.  W.  309). 

** Powder  Case":  Buckeye  Powder  Company  v.  E. 
I.  du  Pont  de  Nemours  Powder  Company  et  al.  This 
was  an  action  in  the  Federal  District  Court  for  the 
District  of  New  Jersey  to  recover  treble  damages 
under  the  Sherman  Act  amounting  to  $3,859,973.46. 
Motion  to  strike  out  the  declaration  was  denied 
March  28,  1912  (196  Fed.  514).  Upon  the  trial,  the 
jury  found  a  verdict  for  the  defendants  (February  25, 
1914).  Upon  appeal  to  the  Circuit  Court  of  Appeals, 
this  judgment  was  affirmed  July  2,  19 15  (223  Fed. 
881). 


286  Business  Competition 

"Projecting  Machine  Case":  Motion  Picture  Pai^ 
ents  Company  v.  Universal  Film  Company  et  al. 
This  was  a  suit  in  equity  in  the  Federal  District  Court 
at  New  York  City  to  enjoin  the  defendants  from  in- 
fringing the  plaintiff's  patents  and  license  restrictions. 
The  District  Court  dismissed  the  bill  in  equity  in 
December,  19 15,  and  upon  appeal  to  the  Circuit 
Court  of  Appeals,  this  decision  was  affirmed  June  15, 
1916  (235  Fed.  398). 

"Publishers'  Case":  Strauss  v.  American  Book 
Publishers  et  al.  This  was  a  suit  in  equity  in  the  New 
York  Supreme  Court  for  damages  and  to  enjoin  the 
defendants  from  enforcing  a  system  of  agreements 
relating  to  the  resale  price  of  copyrighted  and  uncopy- 
righted  books.  Demurrer  to  the  complaint  was 
sustained  January  27, 1903,  but  on  appeal  to  the  Appel- 
late Division  this  decision  was  reversed  so  far  as  it 
related  to  copyrighted  books  July,  1903  (85  A.D.  446), 
and  on  appeal  to  the  New  York  Court  of  Appeals,  this 
decision  of  the  Appellate  Division  was  affirmed  Febru- 
ary 23,  1904  (177  N.  Y;.  473).  Meanwhile,  the  plain- 
tiff's motion  for  a  temporary  injunction  had  been 
denied  by  the  New  York  Supreme  Court  January  9, 
1903.  But  after  the  Court  of  Appeals  decision  above 
mentioned,  this  order  denying  the  injunction  was 
reversed,  and  an  injunction  was  granted  by  the 
Appellate  Division  in  March,  1904  (92  A.D.  350),  and 
the  defendants  filed  answers,  portions  of  which  were 
struck  out  by  the  Appellate  Division  in  July,  1904 
(96  A.D.  315)  and  other  portions  of  which  were  held 
by  the  New  York  Supreme  Court  to  be  insufi&cient 
upon  demurrer  in  November,  1904  (45  Misc.  251), 


Bibliography  and  Authorities      287 

and  still  other  portions  of  which  were  held  by  the 
Appellate  Division  to  be  sufficient  upon  demurrer  in 
April,  1905  (103  A.  D.  277).  Thereafter,  the  Supreme 
Court  of  the  United  States  in  Bobbs-Merrill  v.  Strauss 
held  June  i,  1908  (210  U.  S.  339,  see  "Copyright 
Case"  above),  that  so  far  as  resale  price  arrangements 
were  concerned  the  copyright  law  had  no  effect. 
Nevertheless,  when  the  New  York  case  came  to  trial, 
interlocutory  judgment  was  entered  by  the  New  York 
Supreme  Court  November  20,  1907,  refusing  an  in- 
junction so  far  as  copyrighted  books  are  concerned, 
but  granting  it  in  respect  of  uncopyrighted  books; 
and  on  appeal  this  judgment  was  affirmed  by  the 
Appellate  Division  in  July,  1908  (127  A.  D.  935)  and 
by  the  New  York  Court  of  Appeals  December  8, 
1908  (193  N.  Y.  496).  The  case  then  went  to  trial 
and  final  judgment,  and  upon  appeal  from  the  final 
judgment  the  same  decision  was  reached  by  the  Court 
of  Appeals  September  27,  1910  (199  N.  Y.  548).  Upon 
appeal  to  the  Supreme  Court  of  the  United  States, 
however,  the  Court  of  Appeals  decision  in  respect  of 
copyrighted  books  was  reversed  December  i,  1913 
(231  U.  S.  222).  Pending  this  action,  the  same  plain- 
tiffs began  action  in  the  Federal  Circuit  Court  at 
New  York  City  for  treble  damages  under  the  Sherman 
Act  against  the  same  defendants.  After  some  pre- 
liminary motions  (see  178  Fed.  586),  judgment  for  the 
defendants  was  granted  upon  a  motion  on  the  plead- 
ings December  9,  1912  (201  Fed.  306).  Subsequently, 
this  litigation  was  settled  upon  paj^ment  of  upwards 
of  $200,000  by  the  defendants. 

"Reading  Case":     United  States  v.   The  Reading 


388  Business  Competition 

Company  et  al.  Petition  was  filed  June  12,  1907,  in 
the  Federal  Circuit  Court,  E.  D.  of  Pennsylvania, 
charging  a  combination  among  the  anthracite  coal 
carrying  roads  and  others.  On  December  8,  19 10,  a 
decision  was  handed  down  by  the  Circuit  Court 
adjudging  that  defendants  were  joined  in  a  combina- 
tion in  restraint  of  trade  through  the  instrtimentality 
of  the  Temple  Iron  Company,  but  dismissing  the 
charge  of  the  petition  as  to  the  so-called  65  per  cent, 
contracts  and  as  to  certain  alleged  minor  combina- 
tions (183  Fed.  427).  Cross  appeals  were  taken  to 
the  Supreme  Court,  where  on  December  16,  19 12,  the 
decree  of  the  lower  court,  in  so  far  as  it  adjudged  the 
defendants  parties  to  a  combination  in  restraint  of 
trade  through  the  instrumentality  of  the  Temple 
Iron  Company,  was  afiSrmed,  but  was  reversed  as  to 
the  so-called  65  per  cent,  contracts  with  instructions 
to  cancel  them,  and  was  modified  by  dismissing  the 
petition  in  other  respects  without  prejudice,  instead  of 
absolutely  (226  U.  S.  324).  On  April  7,  1913,  this 
decree  was  further  modified  by  the  Supreme  Court  as 
to  certain  of  the  companies  having  so-called  65  per 
cent,  contracts  (228  U.  S.  158). 

"Register  Machine  Case'*:  United  States  v.  The 
McCaskey  Register  Company  et  al.  Petition  was  filed 
February  20,  191 3,  in  the  Federal  District  Court  at 
Cleveland,  Northern  District  of  Ohio,  charging  the 
defendants  with  conspiring  to  restrain  and  monopo- 
lize the  manufacture  and  sale  of  account  registers 
and  appliances.  Upon  reinvestigation,  the  case  was 
dismissed  without  prejudice  January  7,  19 15. 

"Sanatogen    Case":     Bauer    i>.    O'Donnell.     This 


Bibliography  and  Authorities     289 

case  came  from  the  Court  of  Appeals  of  the  District 
of  Columbia  on  a  certificate  to  the  Supreme  Court  of 
the  United  States,  which  held  on  May  26,  1913,  that 
O'Donnell,  having  bought  Sanatogen  from  jobbers, 
could  retail  it  at  less  than  the  price  prescribed  in  the 
appended  notice  of  the  manufacturer  without  in- 
fringing the  manufacturer's  patents  (229  U.  S.  i). 

"Shoe  Machinery  Case":  United  States  v.  S.  W, 
Winslow  et  al.  Two  indictments  were  returned 
September  19,  191 1,  in  the  Federal  District  Court  of 
Massachusetts  charging  combination,  conspiracy,  and 
monopoly  in  trade  in  shoe  machinery.  A  demurrer 
to  one  indictment  was  sustained,  and  a  demiurer  to 
the  other  indictment  was  overruled  as  to  the  first 
count  and  sustained  as  to  the  second  count  March 
2,  1912  (195  Fed.  578).  An  appeal  was  taken  by  the 
United  States  from  the  latter  decision,  which  was 
unanimously  affirmed  by  the  Supreme  Court  Febru- 
ary 3,  1913  (227  U.  S.  202). 

"Shoe  Machinery  Case":  United  States  v.  United 
Shoe  Machinery  Co.y  et  al.  Petition  in  equity  was 
filed  December  12,  191 1,  in  the  Federal  Circuit  Court, 
District  of  Massachusetts,  alleging  combinations  and 
conspiracies  in  restraint  of  interstate  and  foreign 
trade  in  shoe  machinery,  and  praying  for  a  restraining 
order  and  the  dissolution  of  the  company.  Upon  the 
trial,  the  court  decided  unanimously  in  favor  of  the 
defendants  March  18,  1915  (222  Fed.  349).  From 
this  decision  the  Government  has  appealed  to  the 
Supreme  Court,  which  has  set  the  argument  for 
February,  191 7. 

"Shoe  Machinery  Case":  United  States  v.  United 
19 


290  Business  Competition 

Shoe  Machinery  Company  et  at.  Petition  was  filed 
October  i8,  1915,  in  the  Federal  District  Court  at 
St.  Louis,  Missouri,  charging  that  the  leases  used  by 
the  defendants  are  in  violation  of  Section  3  of  the 
Clayton  Act.  The  Government  obtained  a  prelimi- 
nary injunction  November  9,  1915(227  Fed.  507)which, 
upon  appeal,  was  vacated  on  waiver  by  the  Govern- 
ment, May,  1916.  A  motion  to  dismiss  the  petition 
was  denied  June  7,  1916  (234  Fed.  127),  and  the  case 
is  now  awaiting  trial. 

"Steel  Case":  United  States  v.  United  States  Steel 
Corporation  and  others.  Petition  was  filed  October 
27,  191 1,  in  the  Federal  District  Court  for  the  District 
of  New  Jersey,  alleging  a  combination  in  restraint  of 
interstate  commerce  in  iron  and  steel  and  their  pro- 
ducts and  an  attempt  to  monopolize.  Upon  the 
trial,  the  court  decided  against  the  Government  June 
3,  19 1 5  (223  Fed.  55),  and  a  decree  dismissing  the 
petition  was  entered  September  10,  19 15.  From  this 
decision,  the  Government  has  appealed  to  the  Supreme 
Court,  which  has  set  the  argument  for  February,  19 17. 

"Stone-Cutting  Case":  United  States  v.  The 
Cleveland  Stone  Company  et  at.  Petition  was  filed 
February  12,  19 13,  in  the  Federal  District  Court  at 
Cleveland,  Northern  District  of  Ohio,l  charging  the 
defendants  with  establishing  and  maintaining  a  prac- 
tical monopol}^  of  the  stone  business.  A  final  decree 
granting  the  relief  sought  by  the  Government  was 
entered,  without  contest,  February  11,  1916. 

"  Talking  Machine  Case  " :  Victor  Talking  Machine 
Company  v.  Strauss,  et  al.  This  was  a  suit  in  equity 
in  the  Federal  District  Court  at  New  York  City  to 


Bibliography  and  Authorities     291 

enjoin  the  defendants  from  infringing  the  plaintiff's 
patents  and  license  restrictions.  Upon  the  defend- 
ant's motion,  the  bill  in  equity  was  dismissed  March 
23,  191 5  (222  Fed.  524),  and  on  appeal  to  the  Circuit 
Court  of  Appeals  this  decision  was  affirmed  with  leave 
to  the  plaintiffs  to  amend  their  bill  in  equity  July  17, 

1915  (225  Fed.  535).  The  plaintiffs  then  filed  an 
amended  bill  in  equity,  which  was  dismissed  by  the 
District  Court.  Upon  appeal,  this  decision  was  re- 
versed by  the  Circuit  Court  of  Appeals,  January  11, 

1916  (230  Fed.  449).  Petition  for  certiorari  was 
granted  by  the  Supreme  Court,  March  6,  1916  (241 
U.  S.  662). 

"Thread  Case":  United  States  v.  The  American 
Thread  Company  et  al.  Petition  was  filed  March  3, 
19 13,  in  the  District  Court  at  Trenton,  New  Jersey, 
charging  the  defendants  with  monopolizing  the  thread 
industry.  The  answers  of  the  defendants  were  filed 
September  10,  19 13,  but  the  defendants  did  not 
contest  the  case,  and  a  decree  was  entered  dissolving 
the  combination  and  enjoining  certain  trade  practices 
June  2,  1 9 14. 

"Tobacco  Case":  Whitwell  v.  Continental  Tobacco, 
This  was  an  action  in  the  Federal  Circuit  Court  for 
the  District  of  Minnesota  for  treble  damages  under 
the  Sherman  Act.  The  Circuit  Court  held  that  the 
complaint  failed  to  state  facts  sufficient  to  constitute 
a  cause  of  action.  Upon  appeal,  the  Circuit  Court  of 
Appeals  affirmed  this  decision  November  12,  1903 
(125  Fed.  454). 

"Tobacco  Case":  Commonwealth  v.  Strauss.  The 
defendant  was  indicted  June  6,  1904,  in  the  Massa- 


292  'Business  Competition 

chusetts  Supreme  Court  for  Plymouth  County,  and 
was  convicted.  Upon  appeal  to  the  Massachusetts 
Supreme  Court,  the  conviction  was  set  aside  and  a 
new  trial  ordered  May  19,  1905  (188  Mass.  229). 
Upon  the  new  trial,  the  defendant  was  again  convicted. 
Upon  appeal  to  the  Massachusetts  Supreme  Court, 
this  conviction  was  sustained  May  16,  1906  (190  Mass. 

545). 

"Tobacco  Case":  United  States  v.  American 
Tobacco  Company  et  al.  Petition  was  filed  July  10, 
1907,  in  the  Federal  Circuit  Court  for  the  Southern 
District  of  New  York,  in  which  it  was  alleged  that 
defendants  were  maintaining  a  combination  in  re- 
straint of  trade  and  commerce  in  the  manufacture  and 
sale  of  tobacco.  On  November  7,  1908,  a  decision  was 
rendered  in  favour  of  the  Government,  except  as  to 
individual  defendants  and  certain  foreign  and  other 
corporations  (164  Fed.  700).  Cross  appeals  were 
taken  to  the  Supreme  Court,  where,  on  May  29,  191 1, 
a  decision  was  rendered,  sustaining  the  Government 
(221  U.  S.  106).  The  case  was  remanded  to  the  Cir- 
cuit Court,  and  the  combination  was  dissolved  in 
accordance  with  the  decision  of  the  Supreme  Court 
November  15,  191 1  (191  Fed.  371). 

"Tobacco  Investigation":  Tobacco  Industry.  Bu- 
reau of  Corporations,  Government  Printing  Office: 
Part  I,  published  February  25,  1909,  Part  II  published 
September  25,  191 1,  Parts  III  and  IV  published 
March  15,  1915. 

"Trade  Association  Cases":  Some  of  the  more 
recent  prosecutions  by  the  Federal  Government  are 
the  following :  U.  S.  v.  Carl  C.  King  et  al.     (Aroostook 


Bibliography  and  Authorities     393 

Potato  Shippers'  Association).  Indictment  was  re- 
turned March  4,  1915,  in  the  Federal  District  Court 
for  the  District  of  Massachusetts,  charging  the  de- 
fendants with  entering  into  a  conspiracy  in  restraint 
of  trade  in  potatoes.  Upon  the  trial  five  defendants 
were  convicted  October  10,  19 16.  U.  S.  v.  Irving  et  al. 
Indictment  was  returned  October  31,  1914,  in  the 
Federal  District  Court  for  the  District  of  Utah,  against 
fourteen  master  plumbers  and  retail  dealers  in  plumb- 
ing supplies,  charging  them  with  entering  into  a 
combination  to  secure  a  monopoly  of  the  business  of 
selling  and  installing  plumbing  supplies.  A  demurrer 
to  the  indictment  was  overruled  and  a  motion  to 
quash  was  denied  January  25,  19 15,  and  the  case 
was  tried  in  September,  19 16.  Twelve  defendants 
were  convicted,  and  fines  aggregating  $7250  were  im- 
posed by  the  court,  and  paid.  U.  S.  v.  McCoach  et  al. 
Indictment  was  returned  October  5,  19 14,  in  the 
Federal  District  Court  for  the  Western  District  of 
Pennsylvania  against  thirty-three  master  plumbers  and 
retail  dealers  in  plumbing  supplies  charging  them  with 
entering  into  a  combination  to  secure  a  monopoly  of 
the  business  of  selling  and  instalhng  plumbing  supplies. 
This  case  is  still  pending.  U.  S.  v.  Collins^  et  aL 
Indictment  was  returned  September  4,  19 14,  in  the 
Supreme  Court  of  the  District  of  Columbia  against 
thirty-one  commission  merchants,  charging  them  with 
engaging  in  a  combination  to  fix,  arbitrarily  and 
without  competition,  the  prices  at  which  country 
produce  is  sold  in  the  District  of  Columbia.  Defend- 
ants entered  pleas  of  nolo  contendere  in  December, 
19 1 5,  and  fines  aggregating  $650  were  imposed.    U,  S, 


294  Business  Competition 

v.  Western  Cantaloupe  Exchange  et  al.  Indictment 
was  returned  August  7,  19 14,  in  the  Federal  District 
Court  for  the  Northern  District  of  Illinois  charging 
the  defendants  with  having  entered  into  a  combina- 
tion to  restrain  and  monopolize  interstate  trade  in 
cantaloupes.  This  case  is  now  awaiting  trial.  U.  S. 
V.  Knauer  et  al.  Indictment  was  returned  June  4, 
1 9 14,  in  the  Federal  District  Court  at  Des  Moines, 
Iowa,  charging  the  defendants,  who  were  members  of 
the  National  Association  of  Master  Plumbers,  with 
having  entered  into  a  combination  in  restraint  of 
trade  in  plumbing  supplies.  A  demurrer  to  the  in- 
dictment and  a  motion  to  quash  were  overruled 
November  25,  19 14.  Upon  the  trial,  a  verdict  of 
guilty  was  returned  February  24,  1915,  and  four  de- 
fendants were  fined  amounts  aggregating  $3,000. 
From  this  decision  appeal  was  taken  to  the  Circuit 
Court  of  Appeals  which  affirmed  judgment  September 
16, 1 916.  U.  S.  V.  National  Wholesale  Jewelers*  Associa- 
tion et  al.  Petition  was  filed  November  18, 19 13,  in  the 
Federal  District  Court  at  New  York  City  charging  the 
defendants  with  conspiring  to  eliminate  all  competition 
— except  as  between  wholesalers  or  jobbers — for  the 
trade  of  all  classes  of  retail  dealers  in  jewelry  and 
jewelry  products.  Upon  consent  a  decree  was  entered 
enjoining  the  defendants  from  carrying  out  the 
conspiracy,  January  30,  19 14.  U.  S.  v.  The  New 
Departure  Manufacturing  Company  et  al.  (Coaster 
Brake  Association).  Petition  was  filed  May  27,  19 13, 
in  the  Federal  District  Court  for  the  Western  District 
of  New  York,  alleging  that  the  defendants  had  entered 
into  a  conspiracy  and  combination  by  means  of  a 


Bibliography  and  Authorities      295 

license  for  the  purpose  of  restraining  and  monopolizing 
the  manufacture  and  sale  of  bicycle  and  motorcycle 
parts  and  coaster  brakes.  Upon  consent,  a  decree 
against  the  defendants  was  entered  at  Rochester, 
New  York,  May  27,  19 13.  U.  S.  v.  Board  of  Trade 
of  the  City  of  Chicago  et  al.  Petition  was  filed  Febru- 
ary II,  19 13,  in  the  Federal  District  Court  for  the 
Northern  District  of  Illinois  attacking  Rule  33  of  the 
Chicago  Board  of  Trade,  by  virtue  of  which,  it  was 
alleged,  the  price  of  all  corn,  oats,  wheat,  and  rye 
arriving  in  Chicago  at  times  when  the  board  of  trade 
was  not  in  session  was  arbitrarily  determined.  Upon 
the  trial,  the  decision  was  in  favour  of  the  Government 
and  a  final  decree  was  entered  December  28,  19 15, 
from  which  the  defendants  have  appealed  to  the 
Supreme  Court.  U.  S.  v.  Krentler- Arnold  Hinge  Last 
Company  et  al.  Petition  was  filed  February  7,  1913, 
in  the  Federal  District  Court  for  the  Eastern  District 
of  Michigan,  alleging  the  unlawful  control  by  the 
defendant  of  the  interstate  trade  and  commerce  in 
shoe  and  boot  lasts.  Upon  consent,  a  decree  was 
entered  against  the  defendants  at  Detroit,  Michigan, 
February  7,  19 13.  U.  S.  v.  Page  et  al.  Indictment 
was  returned  February  5,  19 13,  in  the  Federal  District 
Court  for  the  District  of  Oregon,  charging  fifteen 
individuals  with  unlawfully  controlling,  through  the 
medium  of  the  Produce  Merchants  Exchange  of 
Portland,  the  purchase,  distribution,  and  sale  of 
approximately  90  per  cent,  of  the  produce,  fruit,  and 
vegetables  shipped  into  the  State  of  Oregon.  The 
defendants  pleaded  guilty  February  21,  19 13,  and 
fines  aggregating  $8,450  were  imposed  and  collected. 


296  Business  Competition 

U.  S.  V.  Elgin  Board  of  Trade  et  al.  Petition  was  filed 
December  14,  19 12,  in  the  Federal  District  Court  for 
the  Northern  District  of  Illinois,  charging  the  defend- 
ants with  combining  and  conspiring  in  the  interest 
of  a  number  of  large  centralizing  concerns  to  restrain 
interstate  commerce  in  butter  and  butter  fat,  and  with 
arbitrarily  fixing  the  price  thereof  throughout  the 
United  States.  Upon  consent,  a  decree  against  the 
defendants  was  entered  April  27,  19 14.  U.  S.  v, 
Philadelphia  Jobbing  Confectioners'  Association  et  aL 
Petition  'was  filed  December  13,  1912,  in  the  Federal 
District  Court  for  the  Eastern  District  of  Pennsyl- 
vania, charging  the  defendants  with  unlawfully  inter- 
fering with  interstate  commerce  in  candies  and 
confections.  Upon  consent,  a  decree  was  entered 
February  17,  19 13.  U.  S.  v.  Master  Horseshoers* 
National  Protective  Association  of  America  and  others. 
Petition  was  filed  December  12,  1912,  in  the  Federal 
District  Court  for  the  Eastern  District  of  Michigan, 
charging  the  defendants  with  engaging  in  a  combina- 
tion and  conspiring  in  restraint  of  trade  and  commerce 
in  drilled  horseshoes,  adjustable  calks,  and  rubber 
hoof  pads.  Demurrers  were  overruled  April  4,  1914, 
and,  upon  consent,  decrees  against  the  defendants  were 
entered  in  March,  19 14,  April,  19 14,  and  January, 
1916.  U.  S.  V.  Associated  Bill  Posters  and  Distributors 
of  the  United  States  and  Canada,  et  al.  Petition  was 
filed  August  3,  1 9 12,  in  the  Federal  District  Court  for 
the  Northern  District  of  Illinois,  charging  the  defend- 
ants with  engaging  in  a  combination  and  conspiracy 
to  place  unlawful  restraints  upon  interstate  and  foreign 
trade  and  commerce  in  posters.     Upon  the  trial,  a 


Bibliography  and  Authorities     297 

decision  in  favour  of  the  Government  was  rendered 
March  14, 1916,  and  a  decree  to  that  effect  was  entered 
in  July,  1916.  The  defendants  have  appealed  to  the 
Supreme  Court.  U.  S.  v.  The  New  Departure  Manu- 
Jactiiring  Company  et  aL  (Coaster  Brake  Association) . 
Indictment  was  returned  Januarj''  8,  19 12,  in  the 
Federal  District  Court  for  the  Western  District  of 
New  York  against  six  corporations  and  eighteen 
individuals,  charging  unlawful  combination  and 
conspiracy  for  the  purpose  of  monopolizing  the  coaster 
brake  business  and  fixing  and  maintaining  prices  for 
coaster  brakes  under  the  device  of  a  license  agree- 
ment. A  plea  in  abatement  to  the  indictment  was 
overruled  April  2,  19 12,  and  a  demurrer  to  the  indict- 
ment was  overruled  March  12,  1913  (204  Fed.  107). 
Thereupon  the  defendants  entered  pleas  of  guilty  and 
nolo  contendere,  and  fines  aggregating  $81,500  were 
imposed  in  May,  19 13.  U.  S.  v.  Pacific  Coast 
Plumbing  Supply  Association  et  al.  Petition  was 
filed  December  18,  191 1,  in  the  Federal  Circuit  Court 
for  the  Southern  District  of  California,  alleging  un- 
lawful restraints  of  trade  and  commerce  in  plumbing 
supplies  on  the  Pacific  Coast.  A  decree  enjoining 
the  defendants  was  entered  January  6,  1912.  U.  S. 
V.  Willard  G.  Hollis  et  al.  Petition  was  filed  October, 
191 1,  in  the  Federal  District  Court  for  the  District  of 
Minnesota  against  the  Lumber  Secretaries'  Bureau 
of  Information,  The  Lumbermen  Publishing  Com- 
pany, and  certain  individuals  in  the  lumber  trade. 
This  case  is  now  pending.  U.  S.  v.  Colorado  and 
Wyoming  Lumber  Dealers'  Association  and  the  Lumber 
Secretaries'  Bureau  of  Information.     Petition  was  filed 


298  Business  Competition 

September  25,  191 1,  in  the  Federal  Circuit  Court  for 
the  District  of  Colorado,  seeking  an  injunction  against 
the  defendants  for  conspiring  to  restrain  the  trade  in 
lumber  and  its  products.  This  case  is  now  pending. 
U.  S.  V.  Standard  Wood  Company,  et  al.  Petition  was 
filed  in  September,  191 1,  in  the  Federal  Circuit  Court 
for  the  Southern  District  of  New  York  against  the 
members  of  the  so-called  Kindling  Wood  Association. 
On  default,  a  decree  was  entered  against  the  defend- 
ants March  11,  19 12.  U.  S.  v.  Edward  E.  Hartwick 
et  al.  Petition  was  filed  August  31,  191 1,  in  the 
Federal  Circuit  Court  for  the  Eastern  District  of 
Michigan  against  the  members  of  the  Michigan  Retail 
Lumber  Dealers'  Association,  the  Scout  Publishing 
Company,  and  The  Lumber  Secretaries'  Bureau  of 
Information  for  alleged  restraint  of  trade  in  lumber. 
This  case  is  still  pending.  U.  S.  v.  E.  E.  Jackson,  Jr., 
et  al.,  constituting  the  Wire  Rope  Association  and 
U.  S.  V.  Wm.  P.  Palmer  et  al.,  constituting  the  Lead 
Encased  Rubber  Insulated  Cable  Association,  and 
U.  S.  V.  Frank  N.  Philips  et  al.,  constituting  the  Tele- 
phone Cable  Association,  and  U.  S.  v.  Phillip  H.  W, 
Smith  et  al.,  constituting  the  Underground  Power 
Cable  Association,  and  U.  S.  v.  Wm.  P.  Palmer  et  al., 
constituting  the  Horse  Shoe  Manufacturers'  Associa- 
tion, and  U.  S.  v.  F.  W.  Roebling  et  al.,  constituting 
the  Fine  Magnet  Wire  Association,  and  U.  S.  v.  Wm, 
P.  Palmer  et  al.,  constituting  the  Rubber  Covered 
Wire  Association  and  U.  S.  v.  Wm.  P.  Palmer  et  al., 
constituting  the  Weatherproof  and  Magnet  Wire 
Association  and  U.  S.  v.  Wm.  P.  Palmer  et  al.,  con- 
stituting the  Bare  Copper  Wire  Association.    Indict- 


Bibliography  and  Authorities      299 

ments  in  each  of  these  cases  were  returned  in  the 
Federal  District  Court  for  the  Southern  District  of 
New  York  June  29,  191 1.  The  defendants  entered 
pleas  of  nolo  contendere,  and  fines  aggregating  approxi- 
mately $128,700  were  assessed.  U.  S.  v.  Eastern 
States  Retail  Lumber  Dealers'  Association.  Petition 
was  filed  May  19,  191 1,  in  the  Federal  Circuit  Court 
for  the  Southern  District  of  New  York,  charging  the 
defendants  with  conspiring  to  restrain  the  trade 
through  the  instrumentality  of  black  lists  and  trade 
agreements.  Upon  the  trial  the  decision  was  in  favour 
of  the  Government  January  9,  19 12  (201  Fed.  581)  and 
a  decree  against  the  defendants  was  entered  March  i, 
19 12.  Upon  appeal  to  the  Supreme  Court  an  opinion 
favourable  to  the  Government  was  rendered  June  22, 
1914  (234  U.  S.  600) .  U.  S.  V.  Wm.  C.  Geer  et  al.  (Paper 
Board  Association).  Indictment  was  returned  April 
28,  191 1,  in  the  Federal  District  Court  for  the  South- 
ern District  of  New  York,  alleging  a  combination  and 
conspiracy  in  restraint  of  interstate  commerce  in 
paper  board.  A  demurrer  to  the  indictment  was  over- 
ruled May  9,  1913.  The  defendants  pleaded  nolo 
contendere  February,  19 15,  and  fines  were  imposed 
aggregating  $16,000. 

"Trade  Association  Investigation":  Farm  Ma- 
chinery Trade  Associations.  Bureau  of  Corporations, 
Government  Printing  Office,  March  15,  191 5. 

**  Trading  Stamp  Case:  Forrest  Photographic 
Company  v.  Hutchinson  Grocery  Company.  This  was 
an  action  in  the  Texas  District  Court  for  Bexar 
County  to  recover  upon  a  contract  for  trading  stamps. 
From  a  judgment  dismissing  the  case,  the  plaintiff 


300  Business  Competition 

appealed  to  the  Court  of  Civil  Appeals  which  reversed 
the  judgment  March  4,  1908  (108  S.  W.  768). 

'•Trading  Stamp  Case":  Merchants  Legal  Stamp 
Company  v.  Murphy,  This  was  an  action  in  the 
Massachusetts  Superior  Cotu-t  for  Suffolk  County  to 
enforce  a  trading  stamp  contract.  From  a  decree 
dismissing  the  bill,  the  plaintiff  appealed  to  the 
Massachusetts  Supreme  Court,  which  affirmed  the 
decree  March  i,  1915  (220  Mass.  281). 

"Turpentine  Case":  U,  S.  v.  American  Naval 
Stores  Co.  et  al.  Indictment  was  returned  April  11, 
1908,  in  the  Federal  Circuit  Court  for  the  Southern 
District  of  Georgia  charging  a  combination  in  restraint 
of  trade  and  commerce  in  the  manufacture  and  sale  of 
turpentine.  A  demurrer  to  the  indictment  was  over- 
ruled April  17,  1909  (186  Fed.  592).  A  verdict  of 
guilty  was  returned  as  to  five  individual  defendants, 
and  fines  aggregating  $17,500  were  imposed  and  two 
defendants  were  sentenced  to  serve  three  months  in 
jail  in  May,  1909  (see  172  Fed.  455).  Appeal  was 
taken  to  the  Circuit  Court  of  Appeals  where  the 
judgment  was  affirmed  November  29,  1910  (186  Fed. 
489).  Certiorari  was  thereupon  granted  by  the 
Supreme  Court,  and  the  judgment  of  the  lower  court 
was  reversed  on  the  ground  of  error  in  the  judge's 
charge  to  the  jury  June  9,  1913,  Nash  v.  United  States 
(229  U.  S.  373).  The  case  was  retried  in  the  lower 
court,  and  a  verdict  of  not  guilty  was  returned  June 
I,  1914. 

"Turpentine  Case":  U,  S.  v.  American  Naval 
Stores  Company  et  al.  Petition  was  filed  January 
8,  1912,  in  the  Federal  District  Court  for  the  Southern 


Bibliography  and  Authorities      301 

District  of  Georgia,  alleging  unlawful  combination 
and  conspiracy  in  restraint  of  interstate  and  foreign 
commerce  in  turpentine  and  resin.  A  demurrer  was 
overruled  January  2,  1913.  The  defendant  suspended 
business  on  account  of  financial  difficulties  in  March, 
1913,  and  since  then  no  further  action  has  been  taken. 
*' Underwear  Case":  Atlas  Underwear  Company  v. 
Cooper  Underwear  Company.  This  was  a  suit  in 
equity  in  the  Federal  District  Court  of  Wisconsin  for 
the  Southern  District  to  enjoin  the  circulation  by  the 
defendant  of  threats  of  infringement  suits.  The  court 
granted  an  injunction  December  3,  1913  (210    Fed. 

347). 

"Wall  Paper  Case":  Continental  Wall  Paper 
Company  v.  Voight  &"  Sons  Company.  This  was  an 
action,  in  the  Federal  Circuit  Court  for  the  Southern 
District  of  Ohio  to  recover  a  balance  due  on  account  of 
wall  paper  sold  and  delivered  to  the  defendants.  Upon 
demurrer,  judgment  was  entered  for  the  defendants 
dismissing  the  petition.  Upon  appeal  to  the  Circuit 
Court  of  Appeals,  judgment  was  affirmed  January  5, 
1906  (148  Fed.  939).  Upon  appeal  to  the  Supreme 
Court  judgment  was  affirmed  February  i,  1909  (212 
U.  S.  227). 

"Watch  Case  Suit":  U.  S.  v.  Keystone  Watch  Case 
Company  et  al.  Petition  was  filed  December  20, 
191 1,  in  the  Federal  Circuit  Court  for  the  Eastern 
District  of  Pennsylvania,  alleging  unlawful  contracts, 
combinations  and  conspiracies  to  monopolize  trade 
in  filled  watch  cases  and  watches,  and  praying  for  a 
decree  ordering  the  dissolution  of  the  Company  and 
enjoining  the  defendants  from  further  committing  the 


302  Business  Competition 

acts  complained  of.  A  decision  in  part  favourable 
and  in  part  adverse  to  the  Government's  contentions 
was  handed  down  January  2,  1915  (218  Fed.  502).  A 
demurrer  was  entered  in  conformity  therewith,  from 
which  both  the  Government  and  the  defendants  have 
appealed  to  the  Supreme  Court  where  the  appeal  is 
now  pending. 

''Wholesale  Grocers'  Case":  U.  S.  v.  Southern 
Wholesale  Grocers'  Association.  Petition  was  filed 
June  9,  1 910,  in  the  Federal  Circuit  Court  for  the 
Northern  District  of  Alabama  against  an  alleged 
combination  to  regulate  prices  and  control  marketing 
of  groceries.  Upon  consent,  a  decree  was  entered 
perpetually  enjoining  the  association,  its  officers,  and 
members,  from  doing  any  and  all  of  the  acts  com- 
plained of  October  17,  191 1  (see  207  Fed.  444).  On 
February  10,  1913,  petition  for  rule  to  show  cause 
why  an  attachment  should  not  issue  for  contempt  of 
court  for  alleged  violation  of  the  terms  of  this  decree 
was  filed  in  the  Federal  District  Court  for  the 
Northern  District  of  Alabama.  The  association  and 
three  individual  members  were  adjudged  guilty  of 
contempt  of  court,  and  on  August  4,  1913,  fines  ag- 
gregating $5,500  were  imposed. 

Wherever  any  of  the  authorities  above  men- 
tioned have  been  officially  reported  among  the 
decisions  of  the  Supreme  Court  of  the  United 
States,  or  the  lower  Federal  courts,  or  the  various 
State  courts,  the  reference  has  been  given.  Many 
of  the  most  recent  and  significant  of  these  authori- 


Bibliography  and  Authorities     303 

ties,  however,  are  either  bills  of  complaint,  charges 
to  juries,  decrees,  or  other  unpublished  proceedings 
that  are  not  readily  accessible  anywhere  except 
through  the  special  courtesy  of  either  Government 
officials  or  participating  counsel.  For  much  of 
this  unpublished  material,  I  am  indebted  to  the 
Attorney- General  of  the  United  States  and  to 
various  United  States  attorneys  and  officials  of 
the  Department  of  Justice. 


Some  of  the  more  recent  books,  dealing  with  the 
topics  of  the  preceding  chapters  and  with  collateral 
topics,  and  with  various  economic  aspects  of  these 
topics,  have,  in  response  to  numerous  requests, 
been  enumerated  below.  No  attempt  has  been 
made  to  make  the  list  complete,  nor  to  include 
the  wealth  of  valuable  material  that  has  appeared 
in  numberless  newspapers,  magazines,  and  Govern- 
ment publications;  and  only  such  books  as  are 
readily  accessible  to  the  general  reader  are 
mentioned : 

Trust  Laws  and  Unfair  Competition,  by  Joseph  E. 
Davies,  Commissioner  of  Corporations,  Washington^ 

1915. 

Awakening  oj  Business,  by  Edward  N.  Hurley, 
New  York,  191 6. 

The  Anti-trust  Act  and  the  Supreme  Court  by 
William  H.  Taft,  New  York,  1914. 

Manual  of  the  Sherman  Law,  by  Everett  N.  Curtis, 
New  York,  1915. 

A  Treatise  on  the  Sherman  Anti-Trust  Act,  by 
William  W.  Thornton,  Cincinnati,  1913. 

304 


Bibliography  and  Authorities      305 

History  of  the  Sherman  Law,  by  Albert  H.  Walktr, 
New  York,  19 10. 

Th9  Federal  Trade  Commission,  by  John  M.  Harlan 
and  Lewis  W.  McCandless,  Chicago,  19 16. 

A  Manual  of  the  Federal  Trade  Commission,  by 
Richard  vS.  Harvey  and  Ernest  W.  Bradford,  Wash- 
ington,   1916. 

The  Law  of  Unfair  Competition  (revised  edition),  by 
Harry  D.  Nims,  New  York,  191 7. 

The  Law  of  Trademarks,  Tradenames,  and  Unfair 
Competition  (third  edition),  by  James  L.  Hopkins, 
Cincinnati,  191 6. 

Goodwill,  Trademarks,  and  Unfair  Trading,  by 
Edward  S.  Rogers,  Chicago,  19 14. 

Industrial  Combinations  and  Trusts,  by  William  S. 
Stevens,  New  York,  1913. 

Trusts,  Pools  and  Corporations  (revised  edition), 
,by  William  Z.  Ripley,  Boston,  1916. 

Trusts  and  Competition,  by  John  F.  Crowell,  Chi- 
cago, 1915. 

Business  Organization  and  Combination,  by  Lewis 
H.  Haney,  New  York,  1913. 
[    The  Trust  Problem,  by  E.  Dana  Durand,  Cambridge, 

1915. 

The  Control  of  Trusts  (revised  edition),  by  John 
B.  Clark,  and  John  Maurice  Clark,  New  York, 
1912. 

Concentration  and  Control:  A  Solution  of  the  Trust 
Problem  in  the  United  States,  by  Charles  R.  Van  Hise, 
New  York,  191 2. 

Control  of  the  Market:  A  Legal  Solution  of  the  Trust 
Problem,  by  Bruce  Wyman,  New  York,  191 1. 


3o6  Business  Competition 

The  Trust  Problem,  by  Jeremiah  W.  Jenks,  New 
York,  1900. 

Monopolies  and  Trusts,  by  Richard  T.  Ely,  New 
York,  1 9 10. 

Trusts  of  Today,  by  Gilbert  H.  Montague,  New 
York,  1904. 

Corporations  and  the  State,  by  Theodore  E.  Burton, 
New  York,  191 1. 

The  New  Competition  (revised  edition),  by  Arthur 
J.  Eddy,  Chicago,  1915. 

Big  Business  and  Government,  by  Charles  N.  Fay, 
New  York,  19 12. 

Trade  Morals,  by  Edward  D.  Page,  New  Haven, 
1914. 

Honest  Business,  by  Amos  K.  Fisk,  New  York, 
1914. 

Inventors  and  Money  Makers,  by  F.  W.  Taussig, 
New  York,  19 15. 

An  Approach  to  Business  Problems,  by  A.  W.  Shaw, 
Cambridge,  191 6. 

Advertising  as  a  Business  Force,  by  Paul  T.  Cher- 
ington.  New  York,  1913. 

Advertising — Selling  the  Consumer ^  by  John  L. 
Mahin,  New  York,  1914. 

The  New  Business,  by  Harry  Tipper,  New  York, 
1914. 

The  First  Advertising  Book,  by  Paul  T.  Cherington, 
New  York,  191 6. 

Selling  Forces,  by  Curtis  Publishing  Company, 
Philadelphia,  19 13. 

Retail  Selling,  by  James  W.  Fisk,  New  York, 
1916. 


Bibliography  and  Authorities      307 

Materials  for  the  Study  of  Elementary  Economics,  by 
Leon  C.  Marshall,  Chester  W.  Wright,  and  James  A. 
Field,  Chicago,  19 13. 

Current  Ecoftomic  Problems ^  by  Walter  H.  Hamilton, 
Chicago,  1 9 15. 

Industrial  Competition  and  Combination,  collated 
by  the  American  Academy  of  Political  and  Social 
Science,  Philadelphia,  19 12. 

National  Industries  and  the  Federal  Government, 
collated  by  the  American  Academy  of  Political  and 
Social  Science,  Philadelphia,  1916. 

Foreign  experience  with  trust  problems  in 
general  will  be  found  interesting: 

Co-operation  in  American  Export  Trade,  by  the 
Federal  Trade  Commission,  Washington,  1916. 

The  Trust  Movement  in  British  Industry,  by  H.  W. 
Macrosty,  London,  1907. 

Monopoly  and  Competition^  by  Hermann  Levy, 
London,  191 1. 

The  Prevention  and  Control  of  Monopolies,  by  W. 
Jethro  Brown,  New  York,  1915. 

Monopolistic  Combinations  in  the  German  Coal 
Industry,  by  Francis  Walker,  New  York,  1904. 

Monarchical  Socialism  in  Germany,  by  Elmer 
Roberts,  New  York,  191 3. 

Several  books  dealing  primarily  with  modes  of 
organizing  and  financing  business  enterprises  are 
helpful  upon  some  of  the  questions  raised  in  the 
preceding  chapters: 


3o8  Business  Competition 

The  Administration  oj  Industrial  Entgr prises,  by 
Edward  D.  Jones,  New  York,  191 6. 

The  Law  of  Promoters,  by  Manfred  W.  Ehrich, 
Albany,  19 16. 

The  Law  of  Unincorporated  Associations,  by  ^Sydney 
R.  Wrightington,  Boston,  1916. 

Corporate  Promotions  and  Reorganizations ^  by  Arthur 
,S.  Dewing,  Cambridge,  1914. 

Voting  Trusts,  by  Harry  A.  Gushing,  New  York,  1915. 

Corporation  Finance  (complete  edition),  Hastings 
Lyon,  Boston,  191 6. 

Corporation  Finance  (revised  edition),  by  Edward 
S.  Mead,  New  York,  1915. 

How  to  Finance  a  Business,  by  A.  W.  Shaw  Com- 
pany, Chicago,  1 912. 

Materials  of  Corporation  Finance,  by  Charles  W. 
Gerstenberg,  New  York,  1915. 

The  diversity  of  the  books  above  enumerated 
shows  how  far  afield  the  student  of  this  subject  must 
go  for  much  of  his  material.  For  the  most  recent 
developments  in  the  economics  of  merchandising, 
first  place  should  always  be  given  to  such  maga- 
zines as  System,  Printer's  Ink,  and  Advertising  and 
Selling,  which  have  long  been  esteemed  by  prac- 
tical merchandising  experts,  and  more  recently 
have  begun  to  be  appreciated  by  economists, 
lawyers  and  general  students  of  modem  business 
eompctition. 


Bibliography  and  Authorities     309 

Shrewd  observers,  who  detect  in  governmental 
regulation  of  business  many  resemblances  to  the 
Government  regulation  of  railroads  and  other 
public  utilities,  may  find  the  following  books 
suggestive: 

The  Law  of  Interstate  Commerce,  by  Frederick  N. 
Judson,  Chicago,  1916. 

An  Act  to  Regulate  Commerce,  by  Herbert  B.  Fuller, 
Washington,  19 15. 

Railroad  Rate  Regulation,  by  Joseph  H.  Beale  and 
Bruce  Wyman,  New  York,  19 15. 

The  Commodities  Clause,  by  Thomas  L.  Kibler, 
Washington,  1916. 

Railroad  Reorganization,  by  Stuart  Daggett,  Cam- 
bridge, 1908. 

Regulation  of  Railroads  and  Public  Utilities  in  Wis-- 
consifi,  by  Fred  L.  Holmes,  New  York,  19 15. 

Justice  and  the  Modern  Law,  by  Everett  V.  Abbott, 
Boston,  1913. 


INDEX 


Adding  Machine  Case,  60-63,  274 

Adriance  Piatt  &  Company  v.  National  Harrow  Company  (see 
"Harrow  Case") 

Aggressive  Salesmanship,  Dangers  of,  1-22  (see  also  "Competi- 
tion") 

American  Graphophone  Company  v.  Boston  Store  of  Chicago 
(see  "Graphophone  Case") 

Atlas  Underwear  Company  v.  Cooper  Underwear  Company  (see 
"  Underwear  Case ' ') 

Attorney-General  (see  "Department  of  Justice") 

Authorities,  List  of,  274-303 

B 

Bath-tub  Case,  136-140,  145,  147,  274-275 

Bauer  v.  O'Donnell  (see  "Sanatogen  Case") 

Bibliography,  304-309 

Bobbs-Merrill  Company  v.  Strauss  (see  "Copyright  Case") 

Boycott,  12  (see also  "Trade  Associations") 

Branded  Goods  (see  " Popular-Branded  Goods, "  "Price-Cutting," 

"Price-Maintenance,"  and  "Unbranded  Goods") 
Buckeye  Powder  Company  v.  E.  I.  du  Pont  de  Nemours  Powder 

Company  et  al.  (see  "Powder  Case") 
Button  Setting  Case,  160-162,  171,  275 

Butterick  Publishing  Company  v.  Fisher  (see  "Pattern  Cases") 
Butterick  Publishing  Company  v.  Rose  (see  "Pattern  Cases") 


Can  Case,  122-123,  275 

Cash  Register  Cases,  5,  7,  45-50.  63-67,  77,  131-135.  I5i»  «75 

3" 


312  Index 

Clayton  Act,  5,  8,  13,  75,  86,  105-108,  I15-XI6,  119-iao,  137, 

156-164,  169-185 
Coal  Tar  Case,  94-96,  276 

Coca-Cola  Company  v.  Bennett  (see  "Coca-Cola  Ca6»") 
Coca-Cola  Case,  183-184,  276 
Commonwealth  v.  Strauss  (see  "Tobacco  Cases") 
Competition,  1-22,  31-32,  44-120,  123-127,  131-135,  151,  156- 

164,  169-185,  187-227,  274-277  (see  also  "Clayton  Act"  and 

"Sherman  Act")  ' 

Consent  Decrees,  53-54,  1 19-122  (see  also  "Competition"  and 

titles  of  various  "Cases") 
Conspiracy,  8-22,  44-45  (see  also  "Competition") 
Continental  Wall  Paper  Company  v.  Voight  &  Sons  Company 

(see  "Wall  Paper  Case  ") 
Copyright  Case,  193-194,  225,  276-277 
Com  Products,  or  Glucose  Cases,  72-73, 91-93, 118-II9, 123-124, 

277 
Cost  Accounting,  267-272 
Creamery  Package  Case,  145-147,  I5i,'277 
Cream  of  Wheat  Case,  17,  32-37,  114-116,  177,  277 


Danbury  Hatters'  Case,  12,  277-278 

Department  of  Justice,  2-4,  24-25,  104,  106,  124,  179,  181-182, 

187-188,  230-231,  254 
District  Attorney  (see  also  "Department  of  Justice") 
Dr.  Miles'  Case,  192,  194-202,  216-217,  222-225,  228,  278 
Dr.  Miles'  Medical  Company  v.  John  D.  Park  &  Sons  Company 

(see  "Dr.  Miles'  Case") 

E 

Elliott  Machine  Company  v.  Center  (see  "Button  Setting  Case") 
"Exclusive-Dealer  Agreements,"  101-127,  158,  181-182,  184 


Farm  Machinery  Trade  Associations,  267-272  (see  also  "Trad* 

Associations") 
Federal  Trade  Commission,  4,  75,  159,  179-180,  181-182,  229, 

267,  271 


Index  313 


Federal    Trade    Commission    v.    A.   B.    Dick    Company    (fitm 

"Mimeograph  Cases") 
"Fighting  Brands,"  86-93  (see  also  "Competition") 
"Fighting  Ships,"  97-100  (see  also  "Competition") 
Ford  Case,  142-144,  278 
Ford  Motor  Company  v.  Union  Motor  Sales  Company  (see  "  Ford 

Case") 
Forrest  Photographic  0)mpany  v.  Hutchinson  Grocery  Company 

(see  "Trading  Stamp  Cases") 
Frey  &  Son,  Inc.  v.  Welch  Grape  Juice  (see  "Grape  Juice  Cases") 


Gary  Dinners,  255-266  (see  also  "Steel  Case")  flP 

Glucose,  or  Com  Products  Cases,  72-73,91-93, 118-119, 123-124,  ^P^ 

278-279 
Grand  Jury,  3-4  (see  also  "Department  of  Justice") 
Grape  Juice  Case,  17-19,  279 
Graphophone  Case,  141-145,  225,  279 
Great  Atlantic  and  Pacific  Tea  Company  v.  Cream  of  Wheat 

Company  (see  "Cream  of  Wheat  Case") 
Grenada  Ltmiber  Company  v.  Mississippi  (see  "Limiber  Dealers' 

Cases") 

H 

Harrow  Case,  153-155,  279-280 

Harvester  Case,  6-7,  124-127,  280 

Harvester  Investigation,  280 

Henry  v.  A.  B.  Dick  Company  (see  "Mimeograph  Casea") 


Ice  Case,  167-169,  280 

Intent,  20-21,  31-32,  82-86  (see  also  "Competition") 

"Interchange  of  Information,"  253-266  (see  also  "Trade  Associa- 
tions") 

International  Harvester  Company  (see  "Harvester  Case"  and 
"Harvester  Investigation") 


Kodak  Case,  11 7-1 18,  281 


314  Index 


Labor  Organizations,  12-13 

Lamp  Case,  120-122,  281 

Letters,  23-51 

Loewe  v.  Lawlor  et  al.  (see  "Danbury  Hatters*  Case") 

Lumber  Dealers'  Cases,  13-15,  37-44,  234-235,  281-382 

Lumber  Dealers*  Investigation,  235,  282 


m 


M 

Merchants  Legal  Stamp  Company  v.  Murphy  (see  "Trading 

Stamp  Cases") 
rlimeograph  Cases,  159,  160,  282 

otion  Picture  Case,  140-141,  282-283 
Motion  Picture  Patents  Company  v.  Universal  Film  Company 

et  al.  (see  "Projecting  Machine  Case") 

N 


Nash  V.  United  States  (see  "Turpentine  Cases") 

News  Plate  Case,  68-72,  283 

North  Atlantic  Steamship  Pool,  97-100,  283-284 


Packers*  Case,  12,  284 

Patent  Infringement,  128-135,  I5i-i55 

Patent  Protection,  Scope  of,  128-155,  225,  231-232 

Pattern  Cases,  169-170,  284-285 

Pictorial  Review  Company  v.  Pate  Brothers  (see  "  Pattern  Cases  ") 

Popular-Branded  Goods,  191,  202-203,  209-217,  218-225  (^^^ 

also  "Price-Cutting,**  "Price-Maintenance,"  and  "Unbrandcd 

Goods") 
Powder  Case,  20-21,  78-85,  285 
"Price-Cutting,"   16-20,  187-227  (see  also  "Popular-Branded 

Goods,"  "Price-Maintenance,"  and  "Unbranded  Goods") 
Price-Discriminations,  75-100 
Price-Maintenance,   1-3,  187-227  (see  also  "Popular-Branded 

Goods,"  "Price-Cutting,"  and  "Unbranded  Goods") 
Projecting  Machine  Case,  172-174,  286 
Publishers'  Case,  232-234,  286-287 


Index  315 


Reading  Case,  12,  287-288 

Refusal  to  sell,  15-20,  108-117,  226-227  (see  also  "Competition") 

Register  Machine  Case,  56-60,  288 


Salesmanship  (see  "Competition") 

Sanatogen  Case,  136,  201-202,  225,  288-289 

Sherman  Act,  3,  5,  8-9,  13,  20,  75*-7S..JQ7-l,U^  l.l^^.LIQ,  124, 
J77-178,  234,238,243,254 

Shoe  Machinery  Cases,  5-7,  107,  148-151,  1 71-172,  289-290 

Steel  Case,  5-7,  255-266,  290 

Stevens  Bill,  187,  224  (see  also  "Price-Cutting"  and  "Price- 
Maintenance") 

Stone-Cutting  Case,  73-74,  290 

Strauss  v.  American  Book  Publishers  et  al.  (see  "Publishers* 
Case") 


Talking  Machine  Case,  147-148,  225,  290-291 
Thread  Case,  87-90,  120,  291 
Tobacco  Cases,  108-114,  164-166,  291-292 
Tobacco  Investigation,  166,  292 
Trade  Associations,  229-273,  292-299 
Trade  Association  Cases,  229-273,  292-299 
Trade  Association  Investigation,  299 
Trading  Stamp  Cases,  170,  299-300 
Turpentine  Cases,  9-12,  300-301 
"Tying  Contracts,"  156-186 


Unbranded  Goods,  203-209,  217-218  (see also  "Popular-Branded 

Goods") 
Underwear  Case,  152-153,  301 

United  States  v.  American  Can  Company  et  al.  (see  "Can  Case") 
United  States  v.  American  Coal  Products  Company  et  al.  (see 

"Coal  Tar  Case") 


3i6  Index 

United  States  v.  American  Naval  Stores  Company  et  at.  (••• 
"Turpentine  Cases") 

United  States  v.  American  Thread  Company  et  al.  (•©•  "Thread 
Case") 

United  States  v.  American  Tobacco  Company  etal.  (see  "Tobacco 
Cases") 

United  States  v.  Associated  Bill  Posters  and  Distributors  of  the 
United  States  and  Canada  et  al.  (see  "Trade  Association 
Cases") 

United  States  Attorney  (see  "Department  of  Justice") 

United  States  v.  Board  of  Trade  of  the  City  of  Chicago  et  al.  (see 
"Trade  Association  Cases") 

United  States  v.  Burroughs  Adding  Machine  Company  et  al. 
(see  "Adding  Machine  Case") 

United  States  v.  Central-West  Publishing  Co.  et  al.  (see  "News 
Plate  Case") 

United  States  v.  Cleveland  Stone  Company  et  al.  (see  "Stone- 
Cutting  Case") 

United  States  v.  Collins  et  al.  (see  "Trade  Association  Cases") 

United  States  v.  Colorado  and  Wyoming  Limiber  Dealers'  Asso- 
ciation and  the  Limiber  Secretaries'  Bureau  of  Information 
(see  "Trade  Association  Cases") 

United  States  v.  Com  Products  Refining  Company  et  al.  (see 
"Glucose,"  or  "Com  Products  Cases") 

United  States  v.  Eastern  States  Retail  Lumber  Dealers'  Associa- 
tion (see  "Lumber  Dealers'  Cases") 

United  States  v.  Eastem  States  Retail  Lumber  Dealers*  Associa- 
tion (see  "Trade  Association  Cases") 

United  States  v.  Eastman  Kodak  Co.  et  al.  (see  "Kodak  Case") 

United  States  v.  Elgin  Board  of  Trade  et  al.  (see  "Trade  Associa- 
tion Cases") 

United  States  v.  Wm.  C.  Geer  et  al.  (see  "Trade  Association 
Cases") 

United  States  v.  General  Electric  Company  et  al.  (see  "Lamp 
Case") 

United  States  v.  Hamburg-Amerikanische  Packet-fahrt  Actien 
Gesellschaft  and  others  (see  "North  Atlantic  Steamship  Pool") 

United  States  v.  Edward  E.  Hartwick  et  al.  (see  "  Trade  Associa- 
tion Cases") 


Index  317 


United  States  v.  Willard  G.  Hollii  et  al.  (•€•  "Trade  Association 

Cases") 
United  States  v.  International  Harvester  Company  et  al.  (s«« 

' '  Harvester  Case  ") 
United  States  v.  Irving  et  al.  (see  "Trade  Association  Cases") 
United  States  t;.  E.  E.  Jackson,  Jr.  et  al.  (see  "Trade  Association 

Cases") 
United  States  v.  Keystone  Watch  Case  Company  et  al.  (see 

"Watch  Case  Suit") 
United  States  v.  Carl  C.  King  et  al.  (see  "Trade  Association 

Cases") 
United  States  v.  Knauer  et  al.  (see  "Trade  Association  Cases") 
United  States  :;.  Krentler-Arnold  Hinge  Last  Company  et  al. 

(see  "Trade  Association  Cases") 
United  States  v.  Master  Horseshoers*  National  Protective  Associa- 
tion of  America  and  others  (see  "Trade  Association  Cases") 
United   States   v.   McCaskey    Register    Company   et   al.    (see 

"Register  Machine  Case") 
United  States  v.  McCoach  etal.  (see  "Trade  Association  Cases") 
United  States  v.  Motion  Picture  Patents  Co.  et  al.  (see  "Motion 

Picture  Case") 
United  States  v.  National  Cash  Register  Co.  et  al.  (see  "Cash 

Register  Cases") 
United  States  v.  National  Wholesale  Jewelers'  Association  et  al. 

(see  "Trade  Association  Cases") 
United  States  v.  New  Departure  Manufacturing  Company  (set 

"Trade  Association  Cases") 
United  States  v.  Pacific  Coast   Plumbing  Supply  Association 

et  al.  (sec  "Trade  Association  Cases") 
United  States  v.  Page  et  al.  (see  "Trade  Association  Cases") 
United  States  v.  Wm.  P.  Pahner  et  al.  (see  "Trade  Association 

Cases") 
United  States  v.  John  H.  Patterson  at  al.  (se«  "Cash  Register 

Cases") 
United  States  i;.  Philadelphia  Jobbing  Confectioners*  Association 

(see  "Trade  Association  Cases") 
United  States  v.  Frank  N.  Philips  et  al.  (see  "  Trade  Association 

Cases") 
United  States  v.  Reading  Compeny  et  al.  (sec  "Reading  Case") 


3i8  Index 


United  States  v.  P.  W.  Roebling  et  al.  (see  "Trade  Association 

Cases") 
United  States  v.  Philip  H.  W.  Smith  et  al.  (see  "Trade  Associa- 
tion Cases") 
United  States  v.  Southern  Wholesale  Grocers'  Association  (see 

Wholesale  Grocers*  Case") 
United  States  v.   Standard  Sanitary  Manufacturing  Company 

et  al.  (see  "Bath-tub  Case") 
United  States  v.  Standard  Wood  Company  et  al.  (see  "Trade 

Association  Cases") 
United  States  v.  Swift  &  Co.  et  al.  (see  "Packers'  Case") 
United  States  v.  United  Shoe  Machinery  Co.  et  al.  (see  "Shoe 

Machinery  Cases") 
United  States  v.  United  States  Steel  Corporation  and  others  (see 

"Steel  Case") 
United  States  v.  Western  Cantaloupe  Exchange  et  al.  (see  "Trade 

Association  Cases") 
United  States  v.  S.  W.  Winslow  et  al.  (see  "Shoe  Machinery 

Cases") 


Victor  Talking  Machine  Company  v.  Strauss  etal.  (see  "Talking 

Machine  Case") 
Virtue  v.   Creamery    Package    Manufacturing    Company   (see 

"Creamery  Package  Case") 

W 

Wall  Paper  Case,  192-193,  224-225,  301 

Watch  Case  Suit,  26-32,  75-77,  116-117,  188-190,  301-302 

Whitwell  V.  Continental  Tobacco  Co.  (see  "Tobacco  Cases") 

Wholesale  Grocers'  Case,  235-252,  302 

Wilder   Manufacturing   Company   v.   Com  Products  Refining 

Company  (see  "Glucose  "  or  "Com  Products  Cases") 
Wood  V.  Texas  Ice  &  Cold  Storage  Company  (see  "Ice  Case") 


(9 


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